Annual Report 2013

Creating New Energy! We will release the Group’s consolidated interim reports for the financial year 2014 as follows: Click here to read the Corporate Social Responsibility Report • 1st quarter – 30 April 2014 • 2nd quarter – 31 July 2014 • 3rd quarter – 31 October 2014

Corporate Social The audited results for the financial year 2014 Responsibility 2013 will be released on 27 February 2015 www.energia.ee/et/investor Contents

Address by the Chairman of the Management Board 5 In Brief 8 Strategy 12 Operating Environment 16 Financial Results 26 The Environment 41 Corporate Governance and Risk Management 46 Consolidated Financial Statements 65 Independent Auditor’s Report 142 Profit Allocation Proposal 143 Consolidated Financial Statements

Consolidated Income Statement 65 18. Share Capital, Statutory Reserve Capital and Retained Earnings 124 Consolidated Statement of Comprehensive Income 66 19. Dividends per Share 125 20. Hedge Reserve Consolidated Statement of Financial Position 67 21. Borrowings Consolidated Statement of Cash Flows 68 22. Trade and Other Payables 127 Consolidated Statement of Changes in Equity 69 23. Deferred Income Notes to the Consolidated Financial Statements 70 24. Provisions 128 25. Revenue 130 Notes to the Consolidated Financial Statements 26. Other Operating Income 131 27. Raw Materials and Consumables Used 1. General Information 70 28. Payroll Expenses 2. Summary of Principal Accounting and Reporting Policies 29. Other Operating Expenses 132 3. Financial Risk Management 94 30. Net Financial Income (-expense) 4. Critical Accounting Estimates and Assumptions 103 31. Corporate Income Tax 5. Segment Reporting 105 32. Cash Generated from Operations 133 6. Property, Plant and Equipment 109 33. Off-Balance Sheet Assets, Contingent Liabilities and Commitments 7. Op e r a t i n g Le a s e 111 34. Disposal of Subsidiaries 135 8. Intangible Assets 112 35. Acquisition of an Additional Interest in an Associate 136 9. Investments in Associates 114 36. Earnings per Share 10. Inventories 116 37. Related Party Transactions 11. Division of Financial Instruments by Category 38. Events After the Reporting Period 137 12. Trade and Other Receivables 118 39. Financial Information on the Parent Company 13. Derivative Financial Instruments 120 14. Credit Quality of Financial Assets 122 15. Financial Assets at Fair Value Through Profit or Loss 123 16. Deposits at Banks with Maturities of More than 3 Months 17. Cash and Cash Equivalents Management Board Chairman ofthe Sandor Liive Eesti Energia´stotalrevenuesamountedto975 million parks in Paldiski and Narva and first waste-to-energy co- still in the process. In 2013, we opened two large wind Only theconstructionof thenewAuverepowerplantis Ongoing investmentshave reachedtheirfinalstages. we finalisedtherenewed strategyforthenexttenyears. further intothecompany’sfuture.Shortlybefore yearend In 2013,wecompletedthreenewpowerplantsand looked working inIda-Virumaaregion. and employed7,000employees,5,000ofwhom are dividends anddifferenttaxestotheRepublicof Estonia 160 millioneuros.In2013,wepaid190 eurosin euros, EBITDAto310millioneurosandnet profit to energy units by2016. reduce NO achieved goodresultsin reducingNO air emissions.Wereduced SO We have successfully completed two projects reducing reducing environmental impacts ofelectricitygeneration. 13% year-on-year.Wehavemadesignificantprogress in also in terms of electricity generation, which increased Last financialyearwasverysuccessfulforEesti Energia this –thecountry,environmentandpeople. waste handlingandheatdropped.Weallbenefitted from large scale waste depositing in Estonia. The prices of the electricity generation of Iru gas-fired plant and ended generation plantinEstonia.Thenewenergyunit doubled Eesti Energiamet2013objectivesfor x emissionsuptotwotimes infouradditional turnoverandoperatingprofit. 2 emissions2.5timesand readers, x emissions. We will emissions.Wewill Dear Contents

5 Eesti Energia Annual Report 2013 Address by the Chairman of the Management Board ricity marketinEstonia. the fullopeningofelect- preparation periodfor marked theendoflong The beginningof2013 competition fromeightmarketparticipants.The custo- operations under open market conditions despite heavy and Lithuania,hasnot been agreedyet.Thelaunching to startsellingfixed-prices electricitycontractsinLatvia SIA and Enefit UAB, the subsidiaries of Eesti Energia, Latvia and Lithuania. The solution thatwouldallow Enefit to stop signing fixed-pricedelectricity sale contractsin financial resultsofEestiEnergia.Therefore,we decided in advance.Thisdecisionhasnegativeimpact onthe can nolongerhedgeEstonia-Latviaborder-crossing costs Since JunelastyearEstonianand Nordic electricitysellers for thesecondyear. mers preferEestiEnergiaalsowhensigning contracts ration periodforthefullopeningofelectricitymarketin The beginning of 2013 marked the end of long prepa- financial year. new oilplantispromisingevenbetterresultsinthis lacking incomefromoilplant.Progressmadeinthe successful electricitygenerationfullycompensatedthe Enefit280 oilplantisnotyetworkingconsistentlythe a materialimpactonourfinancialresults.Whilethe The retentionofelectricitygenerationcapacityhas 70% duringthefirstyearof market remainedaround in Estonian electricity retail ket shareofEestiEnergia know thatwedid.Themar- the competition.Todaywe believe that we can handle ning wecouldonlyhopeand Estonia. Beforemarketope - generation. of fuelsusedinelectricity shale anddiversification tion ofshaleoilfrom We willfocusonproduc- Group distributionnetworkproviderElektrilevicontinues electricity marketsisdeclining. to strengthentheimportanceofLatvianandLithuanian the connectionwithFinnishelectricitymarketcontinues of electricityretailsaleashedginginstrument.While of pricerisksinfinancialmarketanddecreasedtherole and Finland,attheendof2013improvedhedging of Estlink2,a650MWsubmarinecablebetweenEstonia shale thaneverbefore. climate policy.Weextract twicemoreenergyfromoil a competitiveoilandelectricity producerunderstricter generation. Wehavedeveloped methodshowtoremain losses werewith5.2%atrecordlow. end oftheyear167,000meterswerereplaced.Network extensive replacement of remote powermeters.By the has serveditspurpose.In2013,Elektrilevistartedwith of 100 million euros annually in distribution network at theendof2013.Thisallprovesthatinvestment compared topreviousfinancialyearinspiteofstorms air cables.Thishasallowedustoreduceoutages17% network isupgradedbybuildingweatherresistantlandand 5 kilometresofcablesandtwosubstationsaday.The investments to network reliability by buildingon average used inelectricity diversification offuels from oil shale and duction of shale oil We will focus on pro- forthenext ten years. tegy ofEestiEnergia We renewedthestra- Contents

6 Eesti Energia Annual Report 2013 Address by the Chairman of the Management Board important roleinthis. and biomass,willplay lower-quality oilshale including oilshalegas, rent oilshaleproducts tion. Weseethatdiffe- of electricitygenera- of fuelsisthefuture The diversification significantly and without any additional financial support. significantly andwithoutanyadditionalfinancial support. is thefastestmethodhowtodecreaseCO basically copyingthesuccessstoryofUSshale gas.It By doingthis,usingtheproductionby-products, weare produce moreelectricitywhiletheoilvolumes increase. domestic supportfreeelectricitygenerationonalevel power plant. Our long-term perspective is to maintain the we are soon completing the construction of new Auvere power plantsthatcanoperatefordecades.Inaddition, from localfuelwithlowerCO More oilmeansthatalsomoreelectricityisproduced electricity generationthentheansweris–certainlynot. you wouldaskwhetherEestiEnergiaiswithdrawingfrom sible quantityofhigh-qualityoilshaletoindustry.If To increasethevalueaddedwedirectlargestpos-

oil production,allow us to ducts ofpyrolysisprocessin oil shalegas,theby-pro role in this. Semicokeand biomass, willplayimportant lower-quality oilshaleand including oilshalegas, different oil shale products generation. Weseethat is thefutureofelectricity The diversification of fuels nian electricityconsumption. exceeding theactualEsto 2 intensity.Wehavethe 2 emissions - - significantly our flexibility in the competitive regional SO such ascoal.Bymixingdifferentfuelswereducealso lower-quality oilshalewithfuelsofhighcalorificvalue We aretestingtheusageofminingresiduebymixing Chairman oftheManagement Board Eesti Energia, Sandor Liive Enefit280 plantwilldefinitelynotbethelastone. guarantee the smooth operation of the plant. The first 2014 willbeonfine-tuningthenewoilplantin orderto describe ourtargetsalsofornextyears.Ourpriority in cutting andmoreefficientproduction.Thesekeywords uncertain marketconditionsourkeyfocuswillbeoncost production andoilshaleexploitation,willbeupdated.Under important nationaldevelopmentplansimpactingenergy and Estonian renewable energy regulations. In Estonia, two Year 2014willwelcomeuswithseveralchangesinEU Jordan inthenearfuture. and financingpartners.Weexpecttohear good newsfrom nment, signedpreliminaryagreementswithconstruction world. WehavesubmittedouroffertotheJordaniangover- plant inJordanwithoneofthelargestunitcapacity We preparefortheconstructionofoilshalebasedpower electricity market. 2 emissions.Thediversificationoffuelsimproves Contents

7 Eesti Energia Annual Report 2013 Address by the Chairman of the Management Board employers inEstonia. nearly 7,000 employees, Eesti Energia is one of the largest Jordan andtheUSareestimatedat11billiontonnes. With Oil shaleresourcebelongingtoEestiEnergiain Estonia, and technologyareheldinhighregardaroundthe world. Our uniqueexperienceinprocessingoilshaleand ourskills we operateunderthenameofEnefit. network servicestoEstoniancustomers.Internationally, rilevi, EestiEnergiaGroupcompany,providesdistribution Baltic Countriesandtoenergywholesalemarket.Elekt retail companywesellelectricitytocustomersin electricity, heatandshaleoilproduction.Aselectricity The core business of Eesti Energia is oil shale mining for owned bytheRepublicofEstonia. 100% ofthesharesEestiEnergiaare market of the Baltic and Nordic countries. company operating inthe unified energy Eesti Energiaisaninternationalenergy In Brief - 159.5 Net profit 6.3 ELCTRIITY DISBUTE 966.4 Sales revenue with stableoutlook (*changed inJanuary2014) BBB+/Baa2* Credit ratings (1.3)% +107.4% +17.6% TWh

million euros million euros

418.9 Investment SHALE OIS 310.5 EBITDA 208.1 11.4 ELCTRIITY SA +13.4% +10.0% (18.4)% +11.5% TWh

thousand tonnes million euros million euros Contents

8 Eesti Energia Annual Report 2013 In Brief January Key Eventsinthe2013FinancialYear August tility ofcashflows. market opening and vola arising fromelectricity the competitive pressures negative outlookreflects outlook tonegative.The rating of Baa1 with stable ged EestiEnergia’scredit agency Moody’schan- International rating two companies. distributed betweenthe generators areequally tors wereinstalled.The wind energygenera- where 18new2.5MW end ofPakripeninsula park atthenorthern ned jointlyanewwind Nelja Energiaope- Eesti Energiaand - September March 39.1 MW. total productioncapacityof energy generatorswitha rises of17new2.3MWwind power. Thewindparkcomp- now usedtogeneratewind ash depositinguntil1987,is which wasusedforoilshale field ofBaltipowerplant, shale powerplant.Theash on formerashfieldofoil unique windparkinNarva Eesti Energiaopeneda Group´s creditrating. purposes andsupportingthe be usedforbackupliquidity five years.Newfacilitieswill Term ofthenewfacilitiesis size of150millioneuros. SEB Pankforacombined Finland, PohjolaBankand facilities withNordeaBank new bilateral revolving credit Eesti Energiasignedthree Iru waste-to-energyunit. menced inthecompleted municipal wastecom- The testburningofmixed October May ten years. term ofthedebtfacilityis into distributionnetwork.The euros tofinanceinvestments in theamount of 100 million ted theinstallationofdeNO Plants successfullycomple- Eesti EnergiaNarvaPower pilot projectNO equipment. Aspartofthe pean InvestmentBank(EIB) loan agreementwithEuro- Eesti Energiasignedanew power plant. generating unitinEesti was installedtoanenergy emissions uptotwotimes equipment reducingNO tion ofAuverepowerplant. first phaseintheconstruc- process, markedtheendof and steaminthegeneration drum, which separates water The installationofsteam still undertheconstruction. was installedintotheboiler drum weighing160tonnes The 19meterslongsteam power planthalfcomplete. Construction ofAuvere x control x

x

June November Iru waste-to-energyunitusingmixedmunicipalwasteasfuel of uptooneyear. rate andwithcontractterm seller atfixedorcombined electricity andgasfromone offers thecompaniestobuy to electricity.EestiEnergia mers naturalgasinaddition its largecorporatecusto- Eesti Energiastartedselling mixture was10-30%. of Siberiancoalinthefuel value coal.Theproportion by addinghighercalorific low calorificvalueoilshale Plant startedtestingthe Eesti Energia’sBaltiPower Utah andJordanianoilshale. be conductedwithEstonianoilshale.Nexttestswillrun rent typesofoilshale.Thehot-commissioningtheplantwill based pilotplantinFrankfurttotestoilproductionfromdiffe- Enefit OutotecTechnologyopenedauniquetechnology assessment reportbyEnefitJordan. by theministryhadrevieweddetailedenvironmentimpact The approvalwasreceivedoncethecommissionappointed approval forconstructionofoilshalepowerplanttoJordan. Ministry ofEnvironmentJordangrantedEnefitthe also producesheatforTallinnandMaarduresidents. was opened. In addition toelectricity,the 105 million euro unit December banks. with twolargeChinese power plantweresigned the constructionof nary contractsforfinancing shale powerplant.Prelimi- procurement oftheoil construction anddesign Engineering Group,wonthe state-owned ChinaEnergy a subsidiaryoftheChinese Engineering Corporation, plant. GuangdongPower and financiersofthepower contracts withthebuilder project signedpreliminary nian oilshalepowerplant is developingtheJorda- Attarat PowerCompanythat Contents

9 Eesti Energia Annual Report 2013 In Brief Group’s FinancialandOperatingIndicators2010-2013

operating profit before depreciation by divided revenues margin EBITDA on derivatives unreceived profit/loss unpaid/ and capital working in change excl. operations, from flow cash FFO capital invested /average profit operating ROIC +equity) debt /(net debt net Leverage bonds income fixed into investments funds, market money in units 3months), than more of maturity with deposits (incl. equivalents cash and cash less cost), (at amortized obligations debt debt Net of which of Total sales, electricity Electricity distributedElectricity of employees Average number gridDistribution losses Heat sales sales shale Oil Shale oil sales sales oil Shale Regulated price Regulated Non-regulated price

GWh GWh GWh GWh GWh th t th th t th no. % 10,714 6,079 1,966 4,635 1,428 7,423 311 , 6 2010 181 6.6 10,707 5,234 5,473 7,585 1,074 2,120 6,170 2011 164 5.8 10,022 5,644 6,365 4,378 1,423 7,573 2012 189 919 5.7 1 8 6 3 11, 1 8 6 3 11, 6,280 1,021 7,314 2013 208 889 5.2 0 Electricity sales Average ExternalElectricitySalesPrice 12,000 20 15,000 40 60 €/MWh GWh 0 3,000 6,000 9,000 Regulated price 0 2010 30.4 48.4 Regulated market 10,714 6,079 4,635 2010 2011 30.7 48.1 Non-regulated price 10,707 5,473 5,234 2011 Unregulated market 10,022 2012 5,644 4,378 30.3 50.8 2012 11,368 2013 2013 46.3 Contents 10 Eesti Energia Annual Report 2013 In Brief margin profit Operating EBITDA margin FFO/interest cover FFO/interest ROIC EBITDA/interest cover Investments debt Net Equity Leverage Sales Revenues FFO/net debt Net debt/EBITDA FFO operating activities from flow Cash Fixed assets EBITDA Net Profit Net Operating profit million € million € million € million € million € million € million € million € million € million € times times times times % % % % 1,329.4 1,107.1 148.9 185.8 242.3 784.1 218.5 198.1 1 3 . 112 2010 1.0 117. 30.9 1.65 19.0 12.6 14.9 11.4 9.2 0.5 1,236.6 1,769.5 380.2 168.0 507.8 149.2 265.1 831.9 161.8 213.1 2011 20.2 0.56 23.5 13.8 31.9 1 8 11. 11.1 1.4 1,409.1 2,101.9 185.2 278.4 581.0 100.1 822.1 212.5 513.5 2012 29.2 0.37 33.9 76.9 12.2 5.5 7.0 2.1 9.1 2,368.3 1,547.7 966.4 244.6 744.3 310.5 175.5 159.5 257.3 418.9 2013 0.35 32.5 18.2 32.1 8.3 9.3 2.4 7.7 Investments andCashflowfromoperatingactivities Sales RevenuesandEBITDAmargin 100 200 400 500 300 m€ 1,000 m€ 600 600 800 200 400 0 Revenues Cash flowfromoperatingactivities 0 198 2010 2010 784 31 219 EBITDA margin 162 2011 832 2011 32 508 Investments 185 2012 822 34 2012 513 245 2013 966 32 2013 419 10 20 30 40 50 % 0 Contents 11 Eesti Energia Annual Report 2013 In Brief tens ofthousands ofEstonians. the future.Thefulloilshale basedindustrycycleemploys allows EestiEnergiatoemploy thousandsofpeoplealsoin Oil shalebasedco-generation ofliquidfuelsandelectricity ponsibility forthedevelopment oflocalenergy industry. consider theinterests oflocal communities andtake res is meetingenvironmentalandsafetyrequirements. We We operateinresponsiblemanner.Ourhighestpriority products ofshaleoilproduction. electricity producerwemakeefficientusageof allby- possible usageofoilshaleforothercountries. Asan sing experience internationally in order to find the best based shaleoil.Weexportourlong-termoil proces As oilproducerweincreasetheproductionof oilshale economic growthofEstonia. exporter ofelectricitycontributingthussignificantlytothe more efficientusageofoilshaleturnsEstoniaintonet the portfolio of fuels used for electricity generation. The this, we increase the production of shale oil and diversify shale toitsowner,RepublicofEstonia.Inorderachieve prudent and responsible manner to increase the value of oil We usethemineralresourcesofnationalimportancein usage efficiencyandaddvaluethereby. core aim of the company is to oil shaletoproduceoil,electricityandheat.The Eesti Energiaistheoilshale-to-energycompanyusing Strategy increase theoilshale - - shale energy world leaderofoil Eesti Energiaisthe Vision: Contents 12 Eesti Energia Annual Report 2013 Strategy from oilshale. extraction ofenergy We doublethe oil shale reserves.We have mining rights in Estonia, We export our knowhow also to other countries with energy production. and oil shale gas, the by-products from pyrolysisto energy extractedfromoilshalebydirectingsemicoke oil shaleincludingthefineparticles.Wecandouble producing shaleoilfromshale,whichusesallmined developed Enefittechnology,auniquetechnologyfor much oilshaleaspossibleforproduction.Wehave The greatestpotentialforgrowthinvalueliesusingas fuels andelectricity. from oilshalereservesthroughco-generationofliquid The strategy of Eesti Energia isfounded on extracting value Oil ShaleEnergy:More=Electricity shale. and electricityfromoil production ofliquidfuels partners todevelop the with otherinvestorsand side Estoniawecooperate Jordan andtheUSA.Out - gas for energy production and build a new Auvere power gas forenergyproductionand buildanewAuverepower We modernize existing generation portfolio, use oil shale well asenergysavingsolutionstoourclients. a client service organisation providing energy products as of electricity market. As electricity retail company we are dering theregulations aswell as thegeneral development We makespecificinvestmentdecisionsstepby consi consumption inEstonia. of liquidfuel’sproduction,exceedstheannualelectricity capacity, which is based on domestic fuel and by-products sful. Inlong-termEestiEnergia’selectricityproduction The testingoflow-qualityoilshaleandcoalmixwassucces also another option how to decrease emission allowances. duction ofliquidfuels, to electricity. The usageofbiomassis We turnsemicokeandoilshalegas,by-productsofpro our currentgenerationcapacity. climate policy.Thisallowsustomakemaximumuseof match thestringentrequirementsofEuropeanUnion’s possible additional costs and CO fluidized bedtechnologytogenerateelectricityatlowest plant basedonmoreenvironmentfriendlycirculating 2 -intensity as well as to - - - Contents 13 Eesti Energia Annual Report 2013 Strategy power network. tion network.Thisallowsustoestablishaweather-tight services, inincreasingthesecurityofsupplydistribu- Elektrilevi isinvestingallcashflowsfromsaleofnetwork meter readingsystem. to stormy weatherconditions andchange tothe remote by improvingtheresistanceofdistributionnetwork Our biggestchallengeisincreasingcustomersatisfaction ting thequalityrequirementssetforthbyregulator. all themarketparticipantsatanytimeandensuresmee Elektrilevi guarantees equal access to network services for tomer satisfactiongrowth. Elektrilevi are the effective network management and cus The prioritiesofdistributionnetworkservicesprovider We areReducingOutagesandIncreasingCustomerSatisfaction - - regulator. ments setforthbythe ting thequalityrequire- time andensuresmee- ket participantsatany services forallthemar- equal accesstonetwork Elektrilevi guarantees packages moreconsciously. their electricityconsumptionandselectionof to submittheirmeterreadingsandcanalsomanage mers willnolongerhave the newmeterscusto sumption byhour.With measure electricitycon years oftransition,which readers duringthefour 620,000 remotemeter 2016. Elektrileviwillinstall completed bytheendof meter readersshouldbe Transition to remote - - Contents 14 Eesti Energia Annual Report 2013 Strategy owned byEestiEnergia,whichprovideover power plants, heat energyistheNarva producer ofelectricityand The largestEstonian power plant55yearsold. power plantbecomes45andBalti remarkable anniversariesin2014–Eesti Both EestiandBaltipowerplantscelebrate each year. power plantsproduceabout11TWhof electricity whole townofNarvawithheat.TheEestiandBalti of the electricity produced in Estoniaand supply the

90%

Contents 15 Eesti Energia Annual Report 2013 Strategy 1 of improvementbutthe paceofrecoverysloweddown. loped countriesincluding theeuroareashowedsigns of euroarea.Inthethird quarter,economiesofdeve- than initiallyexpectedandsowilltheeconomic decline nomic growthofdevelopingcountrieswillcontinue longer quarter oftheyearrevealedthatslowpace ofeco- nomic growth toeven more conservative. The second In 2013,IMFchangeditsoutlook percentage points)decreasedin2013. the economicdeclineofeuroarea(-0.4%in2013, +0.3 nomic growth(1.9%in2013,-0.9percentagepoints) and euro areamovedindifferentdirections.Both,theUSeco points). Similarlyto2012theeconomiesofUSAand developing countries(4.7% in 2013, -0.2 percentage countries (1.3% in 2013, -0.1 percentage points) and 2012). Theeconomicgrowthshrankbothindeveloped in 2013was3.0%(-0.1percentagepointslessthan According toIMFestimatetheglobaleconomicgrowth preferences ontypesofenergycarriersused. Additionally, energypriceswereimpactedbychangein power plantsandnetworksinoiltransportsystems. temperature, precipitationandmaintenanceworksin oil-exporting regionsandseasonalfactorssuchasair recovery oftheglobaleconomy,geopoliticaltensionsin In 2013,energypriceswereaffectedbytheperceived Operating Environment Macroeconomic data basedonIMFestimates.Source: IMFWEOUpdateJanuary2014: IstheTideRising? 1 fortheglobaleco - - mic recoveryof debt crisis.Theecono- described by recovering from The euroareaeconomyin2013isbest economy by2.5%(+0.9percentagepoints). grow 1.0%in2014(+1.4percentagepoints)andEstonian percentage points)in2014.TheIMFexpectseuroareato IMF forecasts the global economic growth to be 3.7% (+0.7 Contents 16 Eesti Energia Annual Report 2013 Operating Environment government untilendof September2014. Obama signedthespending package,whichwillfundthe both issueswereadopted. InJanuary2014President brought up.InOctober 2013temporarysolutionsfor disputes andtheneedtoincreasedebtceiling was US governmententeredashutdownduetobudgetary be reducedfromJanuary2014.InOctober2013 the US FederalReserveannouncedthebondpurchases will back inthenearestfuture.Yet,on18December, the announced the purchasing of bonds would not be cut in 2012.InSeptember2013,theUSFederal Reserve ressive US Federal Reserve’s monetary policy declared were still insecure about the potential alleviation of agg improvement oftheUSeconomyin2013markets level overthelast12months.Inrelationtogradual 6.7% bytheendofyear(7.9%in2012),lowest During theyear,unemploymentdeclinedreaching The USeconomyimprovedin2013comparedto2012. mechanism, whichshouldcomeintoactionin2014. the firstpillarofbankingunion-singlesupervisory management. InQ32013EuropeanParliamentapproved led banksinthefutureandtosetaframeworkforcrisis a bankingunionnecessarytopreventneedsavetroub In 2013thecorefocusineuroareawasonsettingup year (11.9%inDecember2012). since April2013andstandingat12.0%theendof one ofthekeyfactorswhileremainingatsimilarlevel countries. Thehighunemploymentratecontinuedtobe held back by the weak economies of Southern periphery economic reformsinproblemcountries.Fullrecoverywas euro areawasimpactedbytheprogressandspeedof - - the price of crude oil decreased from 86.4 €/bbl to lower incomparisonwith2012(-4.9€/bbl).In2013, In 2013,Brentcrudeoilpricetradedonaverage5.6% Oil Prices Oil Prices year, positive economic data from US, China and the the oil price in mid-2013. In the second half of the poor outlookofUSandChinaeconomiesreflectedin in oilpricesarisingfromhigherfuelconsumption.The a faster recovery of world economy and hence a growth Reserve. Inthebeginningof2013marketsexpected sing programoftheUSFederal continuation ofthebondpurcha growing uncertaintyaboutthe of worldeconomiesbutalsoby ket expectationsontherecovery were influenced by volatile mar In 2013,Brentcrudeoilprices 80.4 €/bbl. (€/bbl) oil crude Brent spread (€/bbl) spread 1% oil crack Fuel content) (€/tonne) (1% oil Fuel sulphur

* Minimumandmaximumdailyaverage closingprices.Incaseofelectricity, minimum andmaximumdailyaverage pricesareshown. 422.3 (13.1) 75.2 Min* 509.2 90.4 (3.0) Max - - Average price Average (-4.9 €/bbl). comparison with2012 average 5.6%lowerin oil pricetradedon In 2013,Brentcrude 456.5 82.5 (9.1) pared to 2012 to pared Change com 1.5 % 5) (11. 90.6% (5.6)% - Contents 17 Eesti Energia Annual Report 2013 Operating Environment euro areaeconomieshadapositiveimpactonoilprice. to cheaperenergycarriersbyAsianutilities. Europe aswellinAsiamostlyduetowider switching half of2013thedemandforfueloildropped bothin demand foralternativeenergycarriers.Inthe second extensive usageofnuclearpowerresultinginincreased 2012, JapanandSouthKoreadecidedtowithdrawfrom due to the consumption of fuel oil by local utilities. In of fueloilwassupportedbystrongdemandfromAsia and mid-2013.Inthefirsthalfofyearprice demand forfueloilimpactedthecrackspreadinearly in 2013furtherascomparedto2012.Theincreased between crude oil and fuel oil extracted from it) increased €/tonne. Crack spread (describing theprice difference price of fuel oil decreased from 456.5 €/tonne to 432.0 11.5% (-59.2€/tonne)comparedto2012.In2013,the The priceoffueloil(1%sulphurcontent)decreasedby in NorthernAfricanregion. the marketpriceswereimpactedbygeopoliticaltensions complex andtheairattackinSyria.Inthirdquarter pushed upbythehostagecrisisinAlgeriangas Northern Africanregion.Inthefirstquarter,priceswere in areasrelatedtooilproductionlikeAlgeria,Syriaand Throughout the year 2013 geopolitical tensions run high Fuel OilCrackSpread Fuel OilCrackSpread Fuel OilCrackSpread Prices ofLiquidFuels Prices ofLiquidFuels Prices ofLiquidFuels €/bbl €/bbl €/bbl €/bbl 100 100 -15 -15 -10 -10 65 79 86 93 65 79 86 93 72 72 -5 -5 0 0 01/12 05/1209/12 01/1305/1309/1301/14 01/12 05/1209/1201/1305/1309/13 01/14 01/12 01/12 Fuel Oil(1%)(€/tonne) Brent crude(€/bbl) Fuel Oil(1%)(€/tonne) Brent crude(€/bbl) Fuel Oil1%vsBrentCrackSpread Fuel Oil1%vsBrentCrackSpread 05/1209/1201/1305/1309/1301/14 05/1209/1201/1305/1309/1301/14 source: ThomsonReuters source: ThomsonReuters €/tonne €/tonne €/tonne €/tonne 591 635 413 457 502 546 591 635 413 457 502 546 -32 -32 -95 -95 -64 -64 0 0 Contents 18 Eesti Energia Annual Report 2013 Operating Environment to 2012. 43.3% lowercompared allowance futurestraded 2013 CO The priceofDecember States hadinitiallyapplied for. free emissionallowances thattheindustriesofMember the EuropeanCommission announceditwillreducethe concerning theemissionallowances.InSeptember 2013, the EuropeanCommissionhastakenastricter attitude mid-2013. InQ32013thefirstsignsrevealed that ted inthegrowingpriceofemissionallowances since Commission continuedtoincreasein2013.This reflec- to thesuccessofback-loadingproposalbyEuropean of tradingperiodin2019-2020.Thebelief markets tion of 900 million tonnes of emissions until the end market. TheCommissionproposedtowithhold theauc- reduce theexcesssupplyofemissionallowancesin proposal presentedbytheEuropeanCommissionisto of emissionstrading.Thepurposetheback-loading presented several proposals on further development slowdown. InNovember2012theEuropeanCommission vailing on the market resulting from global economic tonne). The price of December 2013 emission allowance futures traded 43.3% lower compared to 2012 (-3.4 €/ The price of December 2013 CO Emission AllowancePrices 2 emission supply ofallowancespre influenced bytheexcess allowance priceswerestill In 2013,emission year. €/tonne attheendof from 6.6€/tonneto4.7 decreased duringtheyear 2 emission allowance - €/t 10 12 Emission AllowancePrices Prices ofCO were nolongerallocated. 2013 freeemissionallowances forelectricitygeneration of freeCO While in2012,thestateallocated10.3million tonnes 2 6 8 4

CO CO 01/12 05/1209/1201/1305/1309/13 01/14 2 2 December 2014 December 2013 Price forDecember2013 Price forDecember2014 2 emission allowances to Eesti Energia then in emissionallowancesto EestiEnergiathenin 2 EmissionAllowances Min (€/t) 2.8 2.9

Max (€/t) Max 6.7 7.0 price (€/t) price Average Average source: ThomsonReuters 4.5 4.7 compared to to compared (44.7)% (43.3)% Change Change 2012 Contents 19 Eesti Energia Annual Report 2013 Business Environment 22% (+6.9€/MWh). price increasedby ge NordPoolsystem In 2013,theavera- tionally, regular maintenance workswerecarried out in lines resultedintransmission capacitylimitations.Addi- place, maintenanceworks incross-bordertransmission faults andrepairsinFinnish nuclearpowerstationstook units went through maintenance works. In Q3 2013 several lines aswelltheEstonianandLithuaniangeneration hydro energy shrank and cross-border power transmission changed attheendofQ22013whenproduction of the electricitypricesinFinlandandBaltics.The situation rapid increaseofhydroreservoirsinQ22013decreased The combinationofwarmerthannormaltemperatures and Electricity pricesinFinlandandBalticswerevolatile in2013. price. Nordic hydro energy generation volume and electricity historic median value. The indicator mainly influences the time thelevelstoodlowerthanayearbeforeand median valuequicklyinQ32013thentheremaining reservoirs intheNordiccountriesreachedhistoric tem priceisattributabletotheextraordinarilylow €/MWh). ThesignificantincreaseintheNordPoolsys- average Nord Pool system price increased by 22% (+6.9 price areasascomparedtopreviousyear.In2013,the In 2013, electricity prices increased in all Nord Pool Electricity Prices level fromlastyear(ave- While thelevelsofhydro of 2012. levels inthesecondhalf rically high hydro reservoir MWh) arisingfromhisto- rage system price 31.2 €/ Electricity Prices ** * ELE/Latvia Estonia Finland SYS Lithuania Lithuanian electricityexchangewasoperatedbyBaltpool. At 18June2012,NordPoolLithuanianpriceareawasopened.Earlier,the area. Latvian priceareawasopenedon3June2013,replacingtheformerELE Price spreadcompared totheSYSprice NP systemprice 39.4 €/MWh 1.3 €/MWh (21.3)% **

*

(€/MWh) 38.1 €/MWh Average price (22.1)% 26.2 26.2 24.4 17.2 17.5 Min (€/MWh) 108.4 126.3 103.9 41.1 €/MWh 3.0 €/MWh 58.5 93.9 Max Max (12.3)% 48.7 €/MWh 10.6 €/MWh Average price price Average (9.8)% 48.3 €/MWh 10.2 €/MWh (13.2)% (€/MWh) 43.0 €/MWh 4.9 €/MWh source: ThomsonReuters (9.6)% 48.3 48.7 43.0 38.1 41.1 pared to 2012 to pared Change com 13.2% 12.3% 22.1% 9.8% 9.6% - Contents 20 Eesti Energia Annual Report 2013 Business Environment and limitationsincross-border transmissioncapacities. in Estoniaduetoelectricity deficitinLatviaandLithuania were attributable to the extraordinary high electricity prices end ofJuly.Thesignificant pricedifferencesinthis period siderably inJune-Julyreachingupto53.7€/MWh atthe average in2013,thedailyspreadincreased con spread betweenEstoniaandFinlandstayedclose tothe high levels of hydro reservoirs. While in general, the price to low prices in Nordic countries resulting from extremely mainly attributabletolowelectricitypriceinFinland due year earlier.Thepricespreadof2.6€/MWhin2012 was was 1.8€/MWh,havingdecreasedby0.7€/MWh froma In 2013,thepricespreadbetweenEstoniaand Finland normal weatherinbothregions. Nordic countriesandFinlanddroppedduetowarmerthan Narva PowerPlants.InQ42013theelectricitypricesin 25 50 75 €/MWh Monthly AveragePricesofElectricity 0 2011 1 Nord PooliEstoniaprice 35 79 Nord PoolELE/Latvia*price 11 2012 13 -

57 Nord PoolFinlandprice Levels ofNordicWaterReservoirs week 15 35 95 55 75 % ofmax

1 91 5 Levels ofNordicreservoirs2013 Levels ofNordicreservoirs2012 Median value* 1 9 13 2013 13 17 21 25 * LatviapriceareawasopenedinJune32013 29 57 33 37 source: ThomsonReuters source: ThomsonReuters 41 91 45 *1990-2012 49 1

1 Contents 21 Eesti Energia Annual Report 2013 Business Environment Eesti Energia stopped entering fixed-price electricity sale Eesti Energiastoppedentering fixed-priceelectricitysale border-crossing costs in advance, on 17 September fact that from 3 June electricity sellers cannot hedge the priceareaandnot for electricitysellers.Duetothe nue for the transmission system operators managing price differencesbetweentheregionsgenerating reve- auction, the deficit of transmission capacities can create or energyauctionfrom3June.Asaresultofthe energy sion capacitiesareallocatedfullybytheimplicit auction Unlike inthesystemusedELEarea, transmis in thesecondhalfofyear. the firsthalfof2013butspreadincreasedsignificantly price spread between Estonia andLatviawas–1.4 €/MWh in increased by1.9€/MWhascompared2012.Theaverage Estonia andELE/Latviawas-5.3€/MWhin2013,having Pool Latvianpricearea.Theaveragespreadbetween ELE tradingareawasclosedandreplacedwiththeNord capacity limitationsontheborder.On3June2013, Estonian-Latvian borderinconnectionwithtransmission In June 2012,theELE price area wasestablishedonthe by extremelylowhydroreservoirlevels. but electricitypricesin2012weresignificantlyinfluenced transmission capacitybetweenthesetwoareasdecreased, means thatthebottleneckeffectresultingfrominsufficient and Finlandwas-1.7€/MWh(-4.1in2012)which In 2013,theaveragepricedifferencebetweenSweden difference betweenEstoniaandFinland. additional transmission capacity will decrease the price allocated by market for the trial operation period. The ter cablestarted. The cable’s transmission capacitywas At theendofOctober,testsEstlink2underwa- -

Electricity Price Clean DarkSpreadinNordPoolEstonia 25 50 75 €/MWh * NPEstoniapriceareaopenedon1.04.201 0 -50 -25 €/MWh Daily AveragePriceDifferences 25 50 0 0 01/11 Nord PoolEstoniaelectricityprice Estonia-Finland 2010* Clean DarkSpreadinNPEstoniaelectricity price 28 51 07/11 01/12 Estonia-Latvia 2011 20 43 07/12 2012 21 39 01/13 source: ThomsonReuters source: ThomsonReuters 07/13 2013 28 43 01/14 Contents 22 Eesti Energia Annual Report 2013 Business Environment by marketprices. ricity priceswerereplaced 2013 and regulated elect - fully openedon1January electricity marketwas The Estonianretail ricity market will most likely be opened on 1 April 2014. ricity marketwillmostlikely beopenedon1April2014. submitted totheLatvianparliament. TheLatvianretailelect ricity markets are partially opened. It is estimated that replaced bymarketprices.LatvianandLithuanianelect on 1January2013andregulatedelectricitypriceswere The Estonian retail electricity market wasfullyopened higher electricitypriceonpowerexchange(+10%y-o-y). impacted by lower price of CO declined theincreaseincleandarkspread2013was price ofCO in 2012whenthecleandarkspreadgrewduetolower area was28.3€/MWh(+7.0 €/MWh, +33% y-o-y).Unlike luding variableoilshaleandCO In 2013,EestiEnergiacleandarkspread(powerpriceexc ring fixed-priceelectricitysalecontractswasnotfound. end oftheyearsatisfactorysolutiontocontinueente- regulators tofindasolutionthesituationbutasat to managepricerisk.EestiEnergiahasturnedtheBaltic significant congestion exists and there are no instruments licit auctionisnotpermittedunderEuropeanUnionlawif contracts inLatviaandLithuania.Thetransitiontofullimp 2 emission allowances while the electricity price emissionallowanceswhiletheelectricityprice 2 2 costs) in the Estonian price costs)intheEstonianprice emission allowances and government andwillbe were approvedbythe Latvian electricity market on theopeningof of legislativeamendments September, theproposals electricity consumption.In 70% ofthevolume opened to the extent of the Latvianmarketwas - - - - Electricity ConsumptiononBalticOpenMarket total marketsize25.6TWh extent of 66% of the volume of electricity consumption. extent of66%thevolumeelectricityconsumption. that in2013,theLithuanianmarketwasopen tothe buy electricity from the open market. It is estimated household consumershavenoincentivetovoluntarily offered to them is lower than the open market price, the open market and since the regulated electricity tariff hold consumershavenoobligationtobuyelectricity on have beenbuyingelectricityontheopenmarket.House- Starting from2013,allbusinesscustomersinLithuania source: EestiEnergiaestimate 13.4 Estonia Proportion of open market consumption 2012 48% Latvia 2.2 5.6 4.4 Lithuania Regulated market total marketsize25.1TWh 6.6 5.6 Proportion of open market consumption 2013 78% 4.9 8.1 Contents 23 Eesti Energia Annual Report 2013 Business Environment electricity. of conditionsandthetransmissionfeefor transit of apply totheconnectionfee,feeforamendment have passed since publication. This condition does not of nationalcirculation,providedthatatleastninetydays operator after its publication in at least one daily newspaper become effectiveonthedatedeterminedbynetwork A networktariffestablishedbyaoperatorshall such asprivatehomes. also thetransmissionofelectricitytoplacesconsumption transmission andthemaintenanceofitsinfrastructure, service covers the ability of the system to ensure electricity reliability and maintenance and repair costs. The network includes costsrelatedtoinvestmentsensuringthenetwork sold bynetworkserviceproviders.Networktariff of weightedaveragecostnetworkserviceandelectricity, Electricity Market Act regulates theapprovalofceiling price network tariffswiththeEstonianCompetitionAuthority. Estonian networkoperatorsareobligedtoapprovethe Network ServiceTariffs Authority. In 2013 the standard methodology for calculating Authority. In2013thestandardmethodologyforcalculating ves thenetworktariffswithEstonianCompetition Elektrilevi, networkoperatorinEestiEnergiaGroup,appro distribution serviceoperatorhasnocontrol. to networklossesareanexampleofcostoverwhichthe Elering’s, transmissionservicetariffandexpensesrelated be submittedseparately.Transmissionsystemoperators, application foradjustmentofnon-controllablecostscan regular reviewoftariffadjustmentcoveringallcosts,the in costsnotcontrolledbynetworkoperator.Inadditionto in salesvolumes,justifiedfixedcostsaswellchanges costs (includingcapitalandjustifiedreturn),changes tariff approvaltakesintoaccounttheforecastedinvestment will bebasedonforecastedcostsofnetworkoperator.The be inforceuntiltheapprovalofnewnetworktariffs,which ding ontheneedfortariffchange.Theapprovedtariffswill the tariff approval period will be one calendar year depen network tariffswasamended.Insteadofthree-yearperiod - - Contents 24 Eesti Energia Annual Report 2013 Business Environment with technologythathasbeenconstantly developing. which hasbeendoneinEstoniaforalmost 100years synthetic crudeoilandismadebyheating oilshale, Enefit140 oilplant was builtnexttoEestipower a millionbarrelsofshale oil The oilproducedfromshaleisessentially each yearfromoilshale. produces morethan plant alreadyin1980. Eesti Energia

Contents 25 Eesti Energia Annual Report 2013 Business Environment Financial Results 1,000 Change inGroupSalesRevenue liquid fuels (+17.0%, +13.2 million euros). Sales revenue liquid fuels(+17.0%,+13.2millioneuros).Sales revenue bution service(+6.9%,+15.8millioneuros)andsalesof sales (+28.5%,+118.4millioneuros),of the distri Sales revenue increasedmainly due to higherelectricity euros, up17.6%comparedto2012(+144.3millioneuros). The Group’s sales revenue in 2013 was 966.4 million Group RevenuesandEBITDA 2013 resultscomparedto2012 m€ 966.4 SALE REVENUE 200 600 800 400 0 +17.6% Revenues 2012 Sales 822 Electricity

+118 million euros

Distribution +16 Shale oil 310.5 EBITDA +13 +11.5% Other (3)

Revenues million euros 2013 Sales 966 -

175.5 Operating profit Breakdown inGroupSalesRevenue was positivelyinfluencedbygrowthintheprofitability of euros (+11.5%,+32.1millioneuros).TheGroup’sEBITDA In 2013,theGroup’sEBITDAamountedto310.5million vices by3.1%(-3.1millioneuros)comparedto2012. decreased duetolowersaleofotherproductsandser- m€ +75.3% 244 91 97 966 m€ +18%

million euros 534 159.5 Net profit Other Shale oil Distribution Electricity +107.4%

million euros Contents 26 Eesti Energia Annual Report 2013 Financial Results Breakdown andChangeinGroupEBITDA 140 210 280 350 to 2012(-1.2%) Group’s EBITDAnegativelyby0.6millioneuroscompared euros). Saleofotherproductsandservicesinfluenced by lower profitability of shale oilsales (-0.9%, -0.3 million other hand,theGroup’sEBITDAwasnegativelyinfluenced bution networkservices(+1.6%,+1.4millioneuros).Onthe electricity sales(+30.1%,+31.6millioneuros)anddistri m€ m€ 70 0 32 91 EBITDA 2012 52 278 310 m€ +11% Electricity +32 136 Distribution +1 Shale oil Other Shale oil Distribution Electricity (0.3) Other (1) EBITDA 2013 310 - sold 11,368GWhofelectricity(+13.4%,+1,346GWh). (+28.5%, +118.4millioneuros).In2013,EestiEnergia Electricity salesrevenuetotalled534.1millioneuros Electricity with electricity agreements.In 2013 thenumber ning of201365% connection pointswerecovered in concluding electricity agreements. Asatthe begin- nia wascharacterizedby higherthanexpectedinterest electricity service. The electricity market opening in Esto table electricityselleror remainpurchasingtheuniversal closed marketatregulatedpricescouldchoose asui the customers who sofarwerebuying electricity from the marketopeningallexistingcontractslapsed and electricity customers in the closed market. As part of As attheendof2012,EestiEnergiahad 499,000 opening. of clients and market share decreased after the market until thenbeenoperatingasamonopoly,the number ket in the beginning of 2013. Since Eesti Energia had is due to the full opening of the Estonian electricity mar- electricity retailsalesvolume previous year. The decrease in increased 9.6%comparedto average marketpricethat the increaseinabove- were positively influenced by Electricity wholesalevolumes +18.2%). Average electricitypricewas46.3€/MWh(+7.1€/MWh, ket salesreached4,271GWh(+118,2%;+2,314GWh). (-12.0%, -968GWh),whileelectricitywholesalemar Of this, retail sales of electricity amounted to 7,097 GWh average marketprice. increase intheabove- influenced bythe volumes werepositively Electricity wholesale - - -

Contents 27 Eesti Energia Annual Report 2013 Financial Results tual electricityclients had 367,000contrac- 2013, EestiEnergia As attheendof 5 4 3 2 ket clientsinLatvia(+443 clientsfromtheendof2012) at theendof2013,EestiEnergiahad1,760open mar to previousyearasdidalsothenumberofnewclients. As the trademarkofEnefit,retailsalesincreasedascompared In LatviaandLithuaniawhereEestiEnergiaoperates under electricity consumptionofclientswas71%. 2013, themarketshareofEestiEnergiainEstonia by on-year) ofdistributionnetworkoperatorElektrilevi. In service to100,000customers(-30,000 year- of 2013,EestiEnergiaprovidestheuniversalelectricity of 2013.In addition to contractual clients,at as the end electricity clients the endof2013,EestiEnergiahad367,000contractual of consumers of universal electricity service fell. As at Energia astheircontractualelectricityseller.Inadditionto covered 78%ofconnectionpoints. fell. Asattheendof2013electricitymarketcontracts number of consumers of universal electricity service of contractualcustomerscontinuedtogrow and the By theendof2012,337,000clientshadchosenEesti Netproductionof electricity. ThemarketshareofEestiEnergia byelectricityamount(includingconsumedasageneralservice andnetworklosses)accordingtothedataofsystem operatorElering. 367thousandelectricityconsumers haveconcludedatotalof462thousandelectricitycontractswhich coverapproximately65%ofallEstonianconsumptionpoints. DatabysystemoperatorElering. 3 (+30,000comparedtothebeginning nued togrowandthenumber Eesti Energia customers conti 2013 thenumber ofcontractual operator Elektrilevi. Duringthe customers ofdistributionnetwork electricity serviceto130,000 started toprovidealsouniversal contractual clients, Eesti Energia 2

4

- - significant pricedifferenceoccurredbetweentheelect- difference on the Estonian-Latvian border. In Q32013, a into forceinJune,itisnotpossibletofixadvanceprice principles ofdividingtransmissioncapacitiesthatentered and 905clientsinLithuania(+589clients).Duetothe biofuel in the coming years. Renewable energy subsidies biofuel inthecomingyears. Renewableenergysubsidies will notreceiverenewableenergysubsidiesfor burning ments totheElectricityMarketAct,NarvaPower Stations in Narvapowerplants.Accordingtothedraft amend decreased mainly as the Group stopped using biomass GWh). Generationofelectricityfromrenewable sources renewable sourcestotalled262.2GWh(-50.9%, -271.7 and lowerCO produced fromoilshalegrewduetohigherelectricity ricity In 2013,wegeneratedatotalof10,560GWhelect- instruments tomanagepriceriskappear. to Latvian and Lithuanian retail customersuntil suitable from spring2014andtoendsellingfixedpricecontracts start sellingelectricitytoLatvianhouseholdconsumers it wasdecidedinOctober2013topostponetheplan earned alossof13millioneurosin2013.Forthisreason price area.Asaresultofdifferences,EestiEnergia price thatGroup’spowerplantshaveearnedinEstonian the electricityexchangeatahigherpricethansales with fixedprices,itwasnecessarytobuyelectricityfrom capacities inLatviaorLithuania,ordertomeetcontracts Energia doesnothavesubstantialelectricitygeneration ricity exchangesofEstonia,LatviaandLithuania.AsEesti 5 (+12.6%,+1,182GWh).Volumesofelectricity 2 market prices.Electricitygeneratedfrom -

Contents 28 Eesti Energia Annual Report 2013 Financial Results €/MWh Average ElectricitySalesPrice* crossing costs(+21.2millioneuros). higher CO million euros).Variablecostsincreasedmainlydueto sales volume(+32.9millioneuros)andmargin(+21.2 EBITDA was positively influenced by higher electricity 136.3 million euros (+30.1%; +31.6 million euros). In 2013, EBITDAfromelectricitysales amounted to any otherwindfarmprojects. summer 2012.EestiEnergiaiscurrentlynotdeveloping parks inNarvaandPaldiskithatwerelaunchedthe (200.3 GWh, +48.4%, +65.3 GWh), mostly from new wind generated fromrenewablesourcescamewindparks (-64.3%, -16.1millioneuros).Themajorityofenergy received byEestiEnergiatotalled9.0millioneuros 30 60 15 75 45 * excl.renewableenergysubsidies 0 2013 2012 Average electricity 39.2 sales price 2 costs (+46.8 million euros) and higher border costs (+46.8 million euros) and higher border +18% 46.3 average electricityprice Nord PoolEstonia 39.2 +10% 43.0 300 600 150 750 450 Sales Revenues m€ ** excl.renewableenergysubsidies,sales revenuesexcl. regulated marketrevenues

0 Renewable energy subsidies energy Renewable Regulated marketrevenues Sales revenues** 2012 416 171 220 25 +28% Change inElectricityBITDA 105 140 175 m€ 70 35 2013 0 525 534 9 EBITDA 2012 104.7 profitability impact on Margin +21.2 10,000 12,500 GWh Sales Volumes 7,000 2,500 5,000 Sales inregulatedmarket Retail sales Sales onpowerexchangesandtowholesalebuyers 0 impact on profitability Volume +32.9 10,022 1,957 5,644 2,421 2012 Change in expenses (14.8) fixed +13% Other (7.8) 11,368 7,097 4,271 2013 EBITDA 136.3 2013 Contents 29 Eesti Energia Annual Report 2013 Financial Results Distribution Prices ged (total impact on average sales price +2.5 €/MWh). and thepriceofElering’stransmissionservicechan at market prices instead of the previously regulated tariff Elektrilevi startedtopurchaseelectricityfornetworklosses on 1January2013sincedistributionnetworkoperator price correction.Aregularcorrectiontookplace the distributionservicetariffisattributabletoregular was 38.9€/MWh(+8.4%,+3.0€/MWh).Theincreasein In 2013,theaveragepriceofdistributionservice behavior habitshadnegativeimpact. temperature andadjustmentofprice-sensitivecustomer network losses(-45GWh)whilehigherthanaverageair ribution servicewaspositivelyinfluencedduetoreduced amounting to6,280GWh(-1.3%;-86GWh).Salesofdist of electricity distributed declined slightly year-on-year (+6.9%; +15.8 million euros) in 2013. In 2013, volume Distribution sales revenue amounted to 244.4 million euros Distribution €/MWh 20 40 10 50 30 0 2012 35.9 +8.4% 2013 38.9 Distribution Sales RevenuefromElectricity m€ 110 220 165 275 55 0 228.6 - - 2012

+6.9% panies wasreducedbyEstonianCompetitionAuthority when permittedregulatedreturnfordistributioncom Another tariff correction took effect at 1 August 2013, investments toimprovementofnetworkreliability. increased to93minutes (91minutes in2012) dueto the in 2012).Theaveragedurationofplannedinterruptions of unplannedinterruptionswas144minutes(187 Excluding suchextraordinarysituationtheaverageduration on unplannedinterruptionswas 269 minutesper client. network construction norms. The impact of these storms were declaredasextraordinarysituationsbasedonthe from 2012.Threemajorstormsattheendofyear GWh or 5.2%, having decreased by 0.5 percentage points In 2013,distributionnetworklossesamountedto359 electrical networkdeclinedfrom7.83%to6.76%. The maximum permitted return on capital invested to changed (impactonaveragesalesprice-0.6€/MWh). 244.4 2013 Sales Volumes 10,000 GWh 2,000 6,000 8,000 4,000 0 6,365 2012 (1.3)% 6,280 2013 - Contents 30 Eesti Energia Annual Report 2013 Financial Results 100 Change inDistributionServiceEBITDA m€ +18,900 tonnes). Eesti Energiasold208,100 tonnesofshaleoil(+10.0%, euros (+17.0%;+13.2million euros)in2013.In2013, The revenuefromthesales ofshaleoiltotalled91.1million Shale oil losses (-15.5millioneuros). to highertransmissioncostsandexpensesfornetwork (+19.1 millioneuros)whilevariablecostsincreaseddue nues comparedto2012grewduehighersalesprice fixed costs(-0.3millioneuros).Marginrelatedreve ted bydecreaseinvolume(-1.9millioneuros)andhigher growth (+3.6millioneuros).EBITDAwasnegativelyimpac tion service EBITDAwas positively influenced by margin 90.6 millioneuros(+1.6%;+1.4euros).Distribu In 2013,EBITDAfromsalesofdistributionservicetotalled 20 60 80 40 0 EBITDA 2012 89.2 impact on profitability Margin +3.6 impact on profitability Volume (1.9) expenses Change in fixed (0.3) EBITDA 2013 90.6 - - -

by 11.5%. The Group’s sales price of shale oil is hedged by 11.5%.TheGroup’ssalespriceofshaleoilishedged price ofheavyfueloil,areferenceproduct,decreased 2012, theaveragepriceincreasedwhileglobalmarket 437.6 €/tonne(+6.4%,+26.1€/tonne).Ascomparedto In 2013,theaveragesalespriceofshaleoilwas Change inShaleOilEBITDA negative impact(-6.6millioneuros). volume (+6.3millioneuros).Increasedfixedcostshada influenced by higher margin (+1.7 million euros) and sales euros (-0.9%;-0.3millioneuros).EBITDAwaspositively In 2013, EBITDA from sale ofshale oil totalled 31.9 million oil was429.4€/tonne(-10.6%,-51.1€/tonne). effect ofderivativetransactions,thesalespriceshale compared to last year) or +8.2 €/tonne. Excluding the of shaleoilwas+1.7millioneuros(+14.8 In 2013,theimpactofhedgingtransactionsonsale to protectsalesagainstthedropinworldmarketprices. 10 20 30 m€ 40 50 0 EBITDA 2012 32.1 impact on profitability Margin +1.7 impact on profitability Volume +6.3 expenses Change in fixed (6.6) Re-valuations (1.7) EBITDA 2013 31.9

Contents 31 Eesti Energia Annual Report 2013 Financial Results Breakdown ofOtherRevenues €/t 100 positively influencedbysaleofdismantledequipment (-3.1%, -3.1millioneuros).Growthofotherrevenuewas other productsandservicestotalled96.8millioneuros In 2013,therevenueofEestiEnergiafromsale Other Revenues Shale OilPrices 125 300 600 150 750 450 m€ 25 50 75 0 0 2012 Average shaleoil 2012 100 36 29 17 18 411 sales price +6% 2013 (3.1)% 438 2013 41 25 10 97 21 of heavyfueloil(1%) Average price 516 (11)% 457 Sales ofoilshale Other Industrial machinerysales Sales ofheat 100 Sales ofShaleOil m€ 20 60 80 40 0 2012 77.8 +17% Change inEBITDAofOtherProducts 100 Waste reception revenues attributable to heat production completion ofwaste-to-energyunitinIruPower Station. of heat(+2.7millioneuros.Heatsalesincreaseddueto from Aidu opencast mine (+4.3 million euros) and sale m€ 25 50 75 2013 0 91.1 EBITDA 2012 Other 52.4 Heat +7.3 Sales Volumes 100 200 150 250 th tonnes 50 0 Oil shale +4.1 2012 189 subsidiary Sale of (14.5) +10% Other +2.4 2013 208 EBITDA 2013 Other 51.7 Contents 32 Eesti Energia Annual Report 2013 Financial Results the saleofelectricalequipmentaswellconstruction amounted to2.5millioneurosin2013.Revenuefrom electricity generation. Energia didnotreceivefreeemissionallowances for purchase cost(-28.4millioneuros)as in 2013 Eesti from operatingactivitiesweredecreaseddue toCO provisions (totalimpact+38.5millioneuros).Cash flows oil sale inventory and change in trade receivables and higher EBITDA (+32.1 million euros), higher usage of Cash flowsfromoperating activities wereincreased by 32.1% year-on-year(+59.4millioneuros). rating activities amounted to 244.6 million euros growing In the financial year 2013, the Group’s cash flows from ope Cash Flows (+4.1 millioneuros). growth insalesofheat(+7.3millioneuros)andoilshale EBITDA ofotherproductswaspositivelyimpactedby in thefirstquarter2012(-14.5millioneuros).The base wasstronglyaffectedbysaleofTelevõrguAS lion euros(-1.2%,-0.6millioneuros).Thecomparison In 2013,EBITDAofotherproductsreached51.7mil- offset byhighersalesprice. Decline insalesvolume(-534,000tonnes,-38%)was plant. Salesofoilshaledecreasedby4.0millioneuros. is attributablemainlytothecompletionofnewoil and repairservicesdecreased8.3millioneuros,which - 2

210 280 negatively impacted by the payment of interest and loan negatively impactedbythepaymentofinterestandloan ties. Additionally, cash flows from operating activities was euros), theimpactofCO In comparisonwiththeGroup’sEBITDA(310.5million EBITDA toOperatingCashFlowsDevelopment operating activities(+9.2millioneuros). shale inventoryhadpositiveimpactoncashflowsfrom expenses (-31.8millioneuros).Thehigherusageofoil euros) decreased thecash flows from operating activi- 140 350 m€ 70 0 EBITDA 2013 310 impact (37) CO 2

in inven- Change tories +9 provisions Environ- mental 2 +3 purchasecost(-36.7million expenses and loan Interest (32) Income (10) tax Other +1 Operating cash flow 2013 245 Contents 33 Eesti Energia Annual Report 2013 Financial Results 100 200 300 400 500 m€ Debt Maturity of theGroupasatendfinancialyearincluded: pared to31December2012).Thesignificantborrowings amounted to 827.9 million euros (+95.2 million euros com million eurosyear-on-year).Theamortisedborrowings borrowings amountedto838.5millioneuros(upby+93.6 As at31December2013,EestiEnergia’stotalnominal debt capitalmarketsifneeded. investment grade level that allows the Group to access with stable outlook. Eesti Energia’s credit ratings are at the Moody’s downgradedEestiEnergia’sbyonenotchtoBaa2 Baa1 with negative outlook from Moody’s. In January 2014 of BBB+ with stable outlook from Standard & Poors and As at31December2013,EestiEnergiahadacreditrating Financing • 0 EIB and 2020. in theamountof600million eurosmaturingin2018 The EurobondslistedontheLondonStockExchange 2014 1 Eurobond 2015 7 2016 Increased Eurobond* 19 2017 19 2018 300 100 419 19 2019 64 - 2020 300 318 18 liquid financial assets) amounted to 84 million euros. The liquid financialassets)amountedto84millioneuros. The luding depositswithmaturityofmorethan3monthsand As at31December2013,theGroup’sliquidassets(inc- date in2018amountsto400millioneuros. issued inApril2012thetotalvolumeofbondswithmaturity listed inLondonStockExchange.Togetherwithbonds interest amounted to 110.5 million euros. The bonds are 109.085% andthenetproceedsofofferingincluding date in 2018 is 2.181%. Issued notes have been priced at million euros.Theyieldofnewlyissuednoteswithmaturity Energia carriedoutabondissueintheamountof100 After theend of reportingperiod,inJanuary2014,Eesti • 2021 investment loansintheamountof95millioneuros to existingloansEestiEnergiawithdrawinQ42013 Bank amountedto238.5millioneuros.Inaddition The loansreceivedfromtheEuropeanInvestment subject toaloanagreementsignedwithEIBin2011. 18 2022 18 2023 18 * new100millioneuro eurobondissueinJanuary2014 2024 12 2025 12 2026 12 Contents 34 Eesti Energia Annual Report 2013 Financial Results at theendof2013including: Group’s undrawnloansamountedto250millioneurosas 6 to 2.1in2012.Thenet debt toequityratiowas48%,up year. The EBITDA to net debt ratio reached 2.4 compared 744.3 millioneuros,up by 163.4millioneurosyear-on- As attheendof2013, theGroup’snetdebt Republic ofEstonia. euros. ThesharesofEestiEnergiaare100%held bythe 2013, EestiEnergia’sequityamountedto1,548 million borrowings are denominated in euros. As at 31 December total Group’sdebtasattheendoffinancial year.All Borrowings withfixedinterestratemadeup94% ofthe floating interestrateswas0.97%(includingthebase rate). fixed interestrateswas4.06%andthatforborrowings with ber 2012).Theweightedaveragerateofborrowingswith at theendof2013was3.86%(4.12%as31Decem The weightedaverageinterestrateoftheGroup’sborrowings Netdebt– obligations(atamortizedcost),less cashandequivalents(incl. depositswithmaturityofmorethan 3months),unitsin money marketfunds,investments • • into fixed incomebonds Bank for financing the investments of Elektrilevi and Bank forfinancingtheinvestmentsofElektrileviand for anewlong-termloanwiththeEuropeanInvestment In October2013,theGroupcompletednegotiations liquidity bufferwillalsodecrease. investment volume will decrease, the need for the undrawn. SinceinthenearestfewyearsGroup’s at theendoffinancialyearloanswerefully The duedateofthecontractsisSeptember2018.As with threeregionalbanks(SEB,PohjolaandNordea). for thetotalamountof150millioneurosweresigned In September2013,bilateralliquidityloancontracts fully undrawn. euros. As at the end ofthe financial year theloan was signed the loan contract in the amount of 100 million 6 stood at stoodat - In 2013 Eesti Energia paid 55.2 million euros dividends In 2013EestiEnergiapaid55.2millioneurosdividends complied withthesefinancialcovenants. financial covenants.Asattheendof2013,Group agreements, EestiEnergiaisboundtoconformcertain by 6.9percentagepointsfrom2012.Basedonitsloan to paydividendsintheamountof113.6millioneuros. the RepublicofEstonia.In2014,EestiEnergiaisexpected times Net Debt/EBITDA Financial Leverage 0 1 2 3 10 20 30 % 40 0 2011 2011 1.4 24 2012 2012 2.1 29 2013 2013 32 2.4 Contents 35 Eesti Energia Annual Report 2013 Financial Results the steam drum and rotary power generator were the building andothersmaller buildings.Inthefinancialyear, of cooling water, administrative building, water preparatory nued alsoinboilerroom, turbineroom,pumpingstation continued. Inparallel,the constructionworkswereconti- ment neededfortheconstruction ofpowerplantwas In 2013,thetransportationandimplementation of equip free ofchargefor2013–2020. total of 18 million tonnes of CO the EuropeanCommissionallowedEstoniatoallocate a For financingtheconstructionofAuverepower plant, net generationoftheAuverepowerplantis2,192 GWh. to thelevelofamoderngasplant.Themaximum annual fuel intakeandhelpstobringtheemissionsof the plant alongside oilshaletoburnbiofuelsforup50%ofits power plant,whichshouldbecompletedin2016,allows ting fluidizedbed(CFB)technologyinAuvere.Thenew of the new powerplantrunning on the modern circula- In summer2011,EestiEnergiastartedtheconstruction Power Plant Circulating FluidizedBed(CFB) Construction oftheNew300MW oil productionwillcontinueinthenextyears. and the preliminary development of international projects network. Theconstructionofanew300MWpowerplant and projects related to improving the quality of distribution were madetothenew300MWpowerplantinAuvere euros (-18.4%,-94.6millioneuros).Thelargestinvestments In thefinancialyear2013,Groupinvested418.9million Investments 2 emission allowances -

Projects ClosetoCompletion Capex BreakdownbyProjects 300 nally, the stator and high pressure turbine were installed. nally, thestatorandhighpressureturbinewereinstalled. largest partsdeliveredtotheconstructionsite.Additio- 600 m€ 150 750 45 m€ 12 0 0 32 6 Until 2013 59 300 MWAuverepowerplant 108

31 419 m€ (18,4)% project deadline2016 Capex

Future investments 448 638 190 170 Maintenance investmentsandother Iru WTE Electricity network Auvere powerplant Capitalised interest International projects Enefit280 International projects until 2016 100 50 50 Contents 36 Eesti Energia Annual Report 2013 Financial Results collection trucks perdayvisitthewaste-to-energy unit. rage Estonianhomeseach year.Onaverage,80waste amount of waste is created by approximately 70 ave 27.5 tonnesofmixed municipal wasteperhour.Such At fullcapacity,theIruwaste-to-energy unitburnsabout preliminary sorting,crushing orsievingofmunicipalwaste. bustion ofdifferentkindwasteanddoesnot require The technologyusedinthewasteunitqualifies for com the residentsofTallinnandMaardu,was105million euros. unit, which in additionto energy generates also heat for ting inEstonianlandfills.Totalcostofthewaste-to-energy project ended large-scale mixed municipal waste deposi generation andwastehandling.Thissignificantenvironment new advanced stepforEstoniaboth in terms of energy waste asfuelwasopened.Iruwaste-to-energyunitisa In June,Iruwaste-to-energyunitusingmixedmunicipal Waste-to-Energy Unit Construction ofIru of 620,000meterswillbereplacedoverfouryears. measuring electricityconsumptionbythehour.Atotal installed itscustomers167,000remotepowermeters ber 2012Elektrileviwithitspartneringcompanieshave to allconsumptionpointsacrossEstonia.SinceNovem- In 2012–2016,Elektrileviwillinstallremotepowermeters 1,826 kilometresofundergroundandoverheadcables. year, the Group renovated and built 679 substations and ted atotalof108millioneurosin2013.Inthefinancial For improvingthequalityofnetworkservice,weinves Network Improving theQualityofDistribution - - - -

nearly 85%ofenergycontainedinwasteintoelectricity by contracts.Thewaste-to-energyunitisabletoturn sary for the followingyearsofoperations are covered of operationaswellthemajorityquantityneces- The fullquantityofwastenecessaryforthetwofirstyears East Investment with5%shareholding. International Berhad with 30% and Jordanian partner Near development project.Project partnersincludeYTLPower Eesti Energiaholds65% intheJordanianelectricityandoil Electricity andOil Project Pre-development oftheJordanian systems areupandrunning. completed. Asatthedateofreportalllime dosing the same time also acceptance and operational tests were systems werecompletedinthefirstquarterof 2013. At gases, irrespectiveofthequalityburntoilshale. Thelime in ordertoachievetherequiredcleaninglevelof exhaust also commencedtheinstallationoflimedosingsystems capacity at the current level. Under the same project, we power plants2.5times,whilemaintainingtheproduction we took an obligation to reduce sulphur emissions at Narva is 4.9 TWh. With the project commenced in spring 2009, those unitsis674MWandtheannualproductioncapacity Eesti powerplant.Aftertheinstallation,netcapacityof rization equipmentonfourofthegeneratingunits For reducingsulphuremissions,weinstalleddesulphu- Equipment atNarvaPowerPlants Installation ofDesulphurisation 50 MWandelectricitygenerationcapacityis17MW. and heat.Theheatgenerationcapacityoftheplantis Contents 37 Eesti Energia Annual Report 2013 Financial Results 8 7 the developed mining areawerecompleted. The planned of energyproject.Theadditionalgeologicalstudies in the environmentregulationnecessaryfordevelopment Environment ofJordan.Jordaniangovernment approved electricity projectwasapprovedbytheMinistry ofthe In 2013,theenvironmentalimpactassessment ofthe export creditagencySinosure. billion USDloanagreementhastheguaranteeof Chinese and IndustrialCommercialBankofChina.Thenearly 1.4 were signedwithtwolargeChinesebanks–BankofChina contracts forfinancingtheconstructionofpowerplant ter WheelerandturbinesuppliedbySiemens.Preliminary world’s leadingboilerdesignandproductioncompanyFos engineering bureauWorleyParsons,boilerswillbebuiltby of GPEC,thepowerplantwillbedesignedbyinternational rement of the oil shale power plant. According to the bid Engineering Group won the construction and design procu ging to Chinese state-owned company China Energy Guangdong PowerEngineeringCorporation(GPEC)belon and financersofthepowerplant. year preliminarycontractswerereachedwiththebuilder two bidders were selected. Attheend of the financial Jordanian powerplantwas completed basedonwhich received intheprocurementforconstruction The technical,legalandcommercialanalysisofthebids ved fromtheinternationallyacknowledgedcorporations. power plant(announcedin2012)disclosed:sixbidsrecei

In 2013,procurementforconstructionoftheJordanian

Measured 3.7billion tonnes,indicated2.5billion inferred0.4billiontonnes. This definitionisappliedforresources beforethepre-technicalanalyses,towhichpossiblemodifyingfactors havenotbeenapplied) defined modifyingfactors)andinferred 2,6billiontonnes(resourceisdefinedasamountoftotalinplace oilshale,thathashighpossibilityforcommercialinterest. Measured 0,9billiontonnes(resource representsapartofinplaceResource,afterithasbeenmodified bydesiredcut-offgrade,technical,economicalandalready - - - - ject is expected to last until 2016. During the preliminary ject isexpected tolastuntil2016. Duringthepreliminary The preliminarydevelopmentoftheJordanian oilpro 460 MWanditscompletionisplannedin2017. net capacityoftheJordanianfirstoilshalepowerplantis ping sessions in July in Salt Lake City and Vernal, Utah and ping sessionsinJulySalt LakeCityandVernal,Utah Bureau ofLandManagement(BLM)includingpublic sco In 2013,theEnvironmentImpactStudy(EIS)continued with capacity of50,000barrelsshaleoilperday. under aphaseddevelopmentscenariowithan ultimate in Utahasabasefordevelopingnewliquidfuels industry American Oil(EAO).Weplantouseouroilshale resources tonnes resource in State of Utah, which is estimated at 6.6 billion In March2011,EestiEnergiaacquiredasignificantoilshale Oil Project Pre-development oftheAmerican Jordanian oilshale. were performedtoadjusttheEnefittechnology were completedandsupplementarytechnicalsurveys In third quarter 2013, additional geographical surveys measured resource for developing electricity project. tonnes Area underresearchisestimatedtocontain3.5billion the AttaratUmGhudranmine. development phase,EestiEnergiawilldevelopapartof 7 8 .In Utah, we operate under the name of Enefit .In Utah, we operate under the name of Enefit of oil shale of which 0.9 billion tonnes represents of oilshalewhich0.9billiontonnesrepresents - -

Contents 38 Eesti Energia Annual Report 2013 Financial Results remain stablein2014. nues andEBITDAto We expectthereve- 2014. Firstly,duetohigher productionvolumesarising The salesvolumeofshale oilisexpectedtoincreasein customers inLatviaand Lithuania. exported electricityvolumesduetolowersales toretail Narva andPaldiskiwindparks.Weexpectadecline in and shaleoilwillhavethelargestpositiveimpact onthe in 2014.Theexpectedgrowththesaleof electricity We expecttherevenuesandEBITDAtoremainstable Outlook for2014 continue into2014. baseline datacollectioncontinuedthrough2013andwill tological andculturalresources.Surfacegroundwater completion ofbaselinedatacollectionforbiological,paleon prerequisite to start air permitting, was completed, as well as data collectiononmeteorologyandairquality,whichisa and infrastructure)wasalsocompeted.1.5yearsofbaseline lity study(includingmining,retorting,upgrading,construction testing ofUtahoilshale.Acomprehensiveprojectprefeasibi In thethirdquarter2013Frankfurtpilotplantstarted requires anEISanalysisandcoordinationwithlocalauthorities. property, theinfrastructurewillalsocrossfederalland,which Although theprojectisbeingdevelopedonEnefit’sprivate a scopingreportwasissuedbytheBLMinSeptember. working atfullcapacityand by Iruwaste-to-energyunit ration capacity is increased The Group’selectricitygene Group revenues. - - - existing oilplant. and improvedtheefficiencyofproductionprocessin production volumein2013.Secondly,wehavereviewed conducted inEnefit1402013,whichreducedthe from commissioningofnewoilplantandmajorrepairs plant tobebuiltinAuvere andinstallationofremote apart fromthebaseinvestments, arethe300MWpower estimated at319million euros.Themaininvestments, Committed investments for2014willdecreaseandare Investments 100 millioneuros. 2014 we carried out a bond issue in the amount of to ensuretheavailabilityofsufficientcash.In January million euros.Weareusingdebtandinternalcash flows 113.6 millioneurosandincometaxtothestate to30 the dividendpaymenttosoleshareholder will reach flows frominvestmentactivities.Weexpectthat in2014 Lower investmentvolumein2014decreasesalsocash to keepitsfixedcostsundercontrol. in 2012. One of the coreprioritiesofEesti Energia is Plants. Thefixedcostsshouldstayatthesamelevelas cost ofwastedepositingisalsogrowinginNarvaPower are behindthesignificantgrowthofvariableexpenses.The Higher environmental taxes from increased resource tax same levelasin2013. 2014 the network losses are likely to remain on the the highestimpactonElektrilevisalesvolume.In to increasecompared2013.Economicgrowthhas We expectthevolumeofdistributionnetworkservices Contents 39 Eesti Energia Annual Report 2013 Financial Results more environment-friendlyproductioninvestments. The sion allowances to the existing manufacturers for making granted Estoniatherighttoallocatefree-of-chargeemis By way of derogation, the European Commission has the referenceproductofshaleoilinglobalmarket. and the price of fuel oil with 1% sulphur content being Price AreaofNordPoolcomparedtothesystemprice price differenceoftheFinlandPriceAreaandEstonia electricity priceintheNordPooltradingsystem, The Group’s financial results are mainly impacted by the materials prevailingintheglobalandregionalmarkets. shale oil substantially depends on the prices of raw The Group’s revenue from the sales of electricity and Closed Positions to completePaideco-generationplant. ments willbemadetoimproveEnefit280oilplantand environmental impacts in NarvaPowerPlants.Lastinvest power readers.Wecontinueinvestmentsinreducing - - allowances portfolio. Eesti EnergiawilladdreceivedCO tonnes ofCO Auvere may receive under that measure up to 18 million new 300 MW power plant being built by Eesti Energia at the year2015. 8.7 milliontonnes(averagepriceof2.3€/tonne)for (average priceof4.8€/tonne)fortheyear2014and allowances theGrouphashedged27.6milliontonnes concluded forwardcontracts.TogetherwithreceivedCO To cover the CO shale oil(averagepriceof428€/tonne) (average priceof40.1€/MWh)and180,000tonnes For 2015 the Group has hedged 5.4 TWh electricity (average priceof472€/tonne)for2014. price of43.7€/MWh)and171,000tonnesshaleoil The Grouphashedged10.5TWhelectricity(average 2 allowancesintheperiodof2013–2020. 2 emission expenses the Group has 2 allowencestoitsCO 2 2

Contents 40 Eesti Energia Annual Report 2013 Financial Results shale resource we started using mine waste, formerly of oilshaleash.To increase theefficiencyofoil resources. Wecontinued withmaximizingtheusage We increasedefficiency throughimprovedusageof allowed ustoreduceNO reduce nitrogen oxide emissions. The installed equipment ting unit already fitted with deSO DeNO other energyunitsassupplementarysourceof calcium. Power Plant and adding crushed stone and mine waste to hurisation equipment on fourgeneratingunits in Narva emissions remarkablybyinstallingthedeSO as possiblealsoin2013.WewereabletoreduceSO We continuedtokeeptheSO Environment Protection Preventive Investmentsto and increaseproductionefficiencysimultaneously. of Eesti Energia was to reduce environmental impacts reasing thevolumes.In2013,oneofkeypriorities decreasing theproductionvolumesbutrathereveninc enabled ustoreduceenvironmentalimpactswithout significantly sincethen.Thetechnologicalprogresshas industry relatedenvironmentalimpactshasimproved almost acentury.Theexperiencewithhandlingoilshale Oil shaleindustryhasbeendevelopedinEstoniafor The Environment x equipmentwasinstalledononeenergygenera - x emissionsalmosttwice. 2 emissionlevelsaslow x equipment in order to x desulp - - 2

mental impacts. generation portfoliohassignificantlyreduced environ oil shaleingenerationprocess.Diversificationof energy considered asawasteorby-product,andlow caloric the usageofoilshale ash. We continuedwith maximizing improved usageof resources. We increasedefficiencythrough - Contents 41 Eesti Energia Annual Report 2013 Environment method inEstonia. generation, atotallynew waste-to-energy wind energybutalso energy weprioritised In termsofrenewable ration field. We started the cold commissioning at the stage markingthekeyevent inEestiEnergia’sco-gene In 2013PaideCHPplant reacheditsfinalconstruction Final Stage Co-Generation Plantin Construction ofPaide unit ofIrupowerplantisusingmixedwastetogenerate ash fieldofBaltipowerplant.Thenewwaste-to-energy opened in2013.Narvawindparkwasbuiltontheformer in Estonia. The new wind parks in Paldiski and Narva were but alsowaste-to-energygeneration,atotallynewmethod In termsofrenewableenergyweprioritisedwind and biomassorotherfuels. xibility infuelusage,suchasa combination ofoil shale the circulatingfluidizedbedtechnologyallowshigherfle production capacity.Besidesreducingemissionallowances ted innewandcleaner,moreeffectivelow-emission With theconstructionofnewAuvereenergyunitweinves- 2013. energy generation in tonnes of waste for used around180,000 petitiveness. Iruplant therefore alsoitscom- heat productionand plant’s electricity and new fuelincreasedthe electricity andheat.The - - generation plant of such capacity is an optimum and best generation plantofsuchcapacityisanoptimumandbest is 8MW.Consideringthelocalheatconsumptionco- based co-generationplantis2MWandheatcapacity the beginning of year. The electricity capacity of biomass end oftheyearandfirstheatwasproducedforPaidein res of oblong reservoirs, res ofoblong reservoirs, mine has 30 kilomet The former open cast channel, wascompleted. 3.5 meterdeeprowing long, 162 m wide and of firstphase,a2.3km 2013 theconstruction water sportscentretogetherwithlocalmunicipality. In we expect to openin this unique area an international munity intheprocessofrestorationarea. In2020 a greatopportunitytoaddnewvaluethelocal com- In 2013,aftertheclosureofAiduopencastmine wehad on some13,000hectaresduringtherecultivation process. former miningareas.Since1960swehaveplantedforest open cast mines. In 2013, 251 ha of forest was planted on recultivation forestofupto50yearsageisgrowingin pine and birch butalso alder and aspen. As a result of mine cultivating theopencastmines.Wehavemostlyplanted for thearea.Afforestationismostcommonmethodof tation, turningintoarablelandorcreatinganewpurpose life environments theareas are restoredthrough fores- Before returning former open pitmineareastonaturaland Restoration ofMineAreas in Paidewillbeheldreservetocoverpeakdemand. solution. Aftercommissioningtheexistingboilerplants - water sportscentre. area aninternational to openinthisunique In 2020weexpect Contents 42 Eesti Energia Annual Report 2013 Environment identify the environment impacts of new technologies on environment.Asafirststepweorderedsurveyto and assessingtheimpactofoilshaleindustry ther withotheroilshalecompanieswestartedmapping local impactonsurroundingenvironment.In2013toge emissions fromasinglesourceofpollutionandtheir environmental impacts.Sofarwehadonlystudiedspecific In 2013wefocusedonimprovingtheassessmentof Environmental Impacts Investigating andAssessing locals. becoming more popular for fishingand hunting among As many other recultivated open cast mine areas Aidu is which are split by 4 million trees planted over 40 years. - of environmentimpactonoilshaleindustrynextyear. than ever.Wewilldefinitelycontinuewithassessment ments theoilshaleindustryofEestiEnergiaiscleaner can saythatduetothehardworkandextensiveinvest- more efficientandenvironmentfriendlyproduction.We shale industryhasgonethroughagiantleaptowards used inoilshaleminingtoday.Sincelastcenturythe dustry impactonenvironment. assessing theimpactofoilshalein- companies westartedmappingand In 2013togetherwithotheroilshale Contents 43 Eesti Energia Annual Report 2013 Environment Emissions Resources Used Production Key EnvironmentFigures Pumped miningwater(million m Municipal waste(th tonnes) Biofuels (mln tonnes) Cooling water(million m Natural gas(million m Commercial oil shale (million tonnes) tonnes) (th fuels Liquid (GWh) Heat (GWh)Electricity Retort gas (million m (million gas Retort CO Fly ash(th tonnes) SO NO incl. waterfromquarries(million m incl. waterfromundergroundmines(million m Õhuheitmed incl. NarvaPowerPlants(thtonnes) 2 2 X (th tonnes) (million tonnes) (th tonnes) 3 3 ) ) 3 ) 3 ) 3 ) 3 ) 1,487.6 10,560 184.2 1,242 1,242 138.1 2013 2013 2013 76.5 13.4 61.6 21.9 47.3 17.2 21.1 214 8.8 0.1 9.1 62

1,307.2 203.0 9,378 1 2 . 112 1,137 2012 2012 2012 90.8 23.2 14.8 59.4 23.1 1 0 11. 209 6.5 0.5 9.9 65 - Environmental FeesPaid Water Pollutants Solid Waste Sulphates (th tonnes) Suspended matter(th tonnes) Mine residue(mln tonnes) Oil shaleash(mln tonnes) Pollution fees(millioneuros) Resource fees(millioneuros) incl. recycled(mln tonnes) incl. recycled(mln tonnes) 2013 2013 2013 64.8 28.3 24.5 0.8 5.6 3.7 8.1 0.1 2012 2012 2012 30.4 76.0 17.8 6.9 8.1 0.1 7.6 1.1 Contents 44 Eesti Energia Annual Report 2013 Environment Contents

Distribution service operator maintains power lines and supplies electricity to customers. Elektrilevi maintains almost 61,000 kilometres of power lines and more than 22,000 substations. With the exception of Lääne county, Viimsi, Narva and its surrounding areas, where electricity is supplied by other network operators, Elektrilevi network covers most of Estonia.

45 • • • 5. 4. 3. 2. authority 1. and soundgovernance: following inter-linked components to ensure transparent have developedacorporategovernancemodel using the To makeEestiEnergia’sgovernanceevenmoreefficient, we • • principles andlawsinourcorporategovernance: company’s structureofownership,weobservethefollowing are listedonLondonStockExchangeandfollowingthe Estonia. DuetothefactthatEurobondsofEestiEnergia The sharesofEestiEnergiaareownedbytheRepublic Risk Management Governance and Corporate

Eesti Energia’sArticlesofAssociation. The CommercialCodeofEstonia; The StateAssetsAct; A singlemanagementstructure andunderstandingof Perceived risk management Effective supervision Agreed reportingprinciples Clear andclearlystated principlesofmanagement The Combined Code on Corporate Governance (herei Selected principles of the Baltic Guidance on the Gover- for management,financialreportingandauditing; Corporate Governance,whichcovertheexpectations the BalticGuidance),drawnupbyInstituteof nance ofGovernment-ownedEnterprises(hereinafter United Kingdom’sFinancialReportingCouncil; nafter the Combined Code), the set of principles ofthe - supervision related matters. mittee provide consultationtothe Supervisory Boardin supervises theactivitiesof ManagementBoard.AuditCom Supervisory Boardappoints theManagementBoardand body and is appointing the company’s Supervisory Board. mittee. TheGeneralMeeting isthehighestmanagement Supervisory Board,ManagementBoardandAudit Com- gement bodiesofEestiEnergiaaretheGeneral Meeting, management structurefromlegalstructure.The mana- goals andrequirements.Thereforewehaveseparated the of Eesti Energia simple and rely above all on the Group’s It hasbeencrucialforustokeeptheorganisation structure Structure Organisational - Contents 46 Eesti Energia Annual Report 2013 Corporate Governance and Risk Management Legal Structure EAO OrionLLC EAO TechnologyLLC EAO StateLeasesLLC EAO FederalLeaseLLC EAO RealEstateCorp

Minority interests Eesti Energiawithcontrollinginterest Owned 100%byEestiEnergiaASsubsidiary Owned 100%byEestiEnergiaAS Eesti Energiadepartments Enefit AmericanOilCo. Narva SoojusvõrkAS Hoolduskeskus OÜ Testimiskeskus OÜ Orica EestiOÜ Eesti Energia Eesti Energia Narva ElektrijaamadAS Tehnoloogiatööstus AS Kaevandused AS Enefit USLLC Õlitööstus AS Elektrilevi OÜ Eesti Energia Eesti Energia Eesti Energia Eesti Energia Eesti EnergiaAulepa Tuuleelektrijaam OÜ Võrguehituse AS Eesti Energia Enefit UAB EnefitSIA Solidus OY (Lithuania) functions (Latvia) Central EESTI ENERGIAAS Renewable energy Nuclear Power Energy trading Energy sales Power Plant and CHP Iru Enefit PowerandHeat Eesti EnergiaTabasalu Koostootmisjaam OÜ Enefit JordanB.V Technology OÜ Nordic Energy Enefit Outotec Valka SIA Pogi OÜ Link AS Energy Company Jordan OilShale Attarat Power Company Contents 47 Eesti Energia Annual Report 2013 Corporate Governance and Risk Management forth in the State Assets Act. The Eesti Energia Supervisory forth intheState AssetsAct.TheEesti EnergiaSupervisory expectations fortheSupervisoryBoard membersareset Chairman of the Supervisory Board. The requirements and The work of the Supervisory Board is organised by the • • • The primaryfunctionsoftheSupervisoryBoard are: other halfbytheMinisterofFinance. Affairs andCommunicationsassoleshareholder, andthe half ofwhomareappointedbytheMinisterEconomic The Eesti Energia Supervisory Board has eight members, Supervisory Board General Meeting. of Finance,representedbytheMinisterFinancein Estonia thesharesofEestiEnergiaareheldbyMinistry 2013 withthedecisionofgovernmentRepublic the soleshareholderrightsuntilMarch2013.From Affairs andCommunicationsintheGeneralMeeting,held munications, representedbytheMinisterofEconomic of Estonia.TheMinistry of Economic Affairsand Com The sharesofEestiEnergiaareownedbytheRepublic no laterthanfourmonthsaftertheendoffinancialyear. approve theannualreportisheldatleastonceayearand approval of annual report. The annual general meeting to Board, major investments, appointment of auditor and entities, electionandremovalofmembersSupervisory and acquisitionofnewcompanies,dissolutionexisting Energia thatamongotherthingsdecidesontheestablishing The GeneralMeetingisthehighestmanagingbodyofEesti General Meeting

to enforce the strategy agreed at the General Meeting, of theGroup. and to supervise the work of the Management Board to approvemajorstrategicandtacticaldecisions, - Act. In 2013 one member of Supervisory Board changed. Act. In 2013 one member of Supervisory Board changed. of Association,theGeneralMeetingandStateAssets Board is guided by its own rules of procedure, the Articles 28 May2016 Expiration ofterm 30 May2007 Date appointed Chairman JÜRI KÄO 30 June2014 1 July2011 Member TOOMAS TAUT 24 April2016 24 April2013 Member OLARI TAA (48)

(60)

(41) 20 September2015 17 March1998 Member TOOMAS LUMAN 26 November2015 26 November2009 Member KALLE PAING 19 May2014 16 May2005 Member MEELIS ATONE

(28) (47)

(54) REIN KILK ANDRES AAME 24 April2013 30 May2007 Member 30 June2014 1 July2011 Member 20 September2014 21 September2011 Member MÄRT VOOGLAID

(60)

(54)

(45) Contents 48 Eesti Energia Annual Report 2013 Corporate Governance and Risk Management in thework of theSupervisoryBoard. other additional paymentsbeyondthose forparticipation of theSupervisoryBoard arenotpaidseverancepayor Audit Committeerunby theSupervisoryBoard.Members made forparticipationin theworkofbodiessuchas bers oftheSupervisory Board. Afurtherpaymentcanbe Finance setsthelimitsonremunerationof mem der orsoleshareholder.AregulationfromtheMinister of and conditionsofpaymentaretakenbythesole stockhol State AssetsAct,underwhichthedecisionson thelevel of theEestiEnergiaSupervisoryBoardareregulated bythe Norcous. The principles of remuneration for the members ney atlawSvenPappofthefirmRaidla Lejins& The work of the Supervisory Board is organised by attor and theTotalRemunerationPaid: Participation ofSupervisoryBoard MembersinMeetings year 2013theSupervisoryBoardheld10meetings. once a month, except during the summer. In the financial member. Supervisory Board meetings generally take place Kilk, was recalled and Olari Taal was appointed as the new In MarchthecurrentmemberofSupervisoryBoard,Rein Name Rein Kilk Toomas Luman Olari Taal Olari Märt Vooglaid Märt Andres Saame Toomas Tauts Toomas Kalle Palling Kalle Meelis Atonen Käo Jüri Participation in meetings 10 10 10 10 10 2 1 7 8 Total remu Total neration in in neration 2013 (€) 2013 1,064 3,547 4,257 4,257 4,257 4,257 5,675 3,192 709 - Total remu Total neration in in neration 2012 (€) 2012 5,808 3,547 3,547 4,257 4,257 3,991 3,991 2,128 - - Change (50)% (83)% 20% (2)% 0% 0% 7% 7% - - - • • • Association. The Supervisory Boards are generally comprised Association. TheSupervisoryBoardsaregenerallycomprised Eesti Energia’ssubsidiariesaresetforthintheirArticlesof The powersandresponsibilitiesoftheSupervisoryBoards Supervisory BoardsofSubsidiaries 2013, 51 meetings were held of which 2 were electronic. voting cantake placeelectronically.During thefinancialyear meetings generallytakeplace onceaweekandifnecessary Eesti Energiatookplace in2013.ManagementBoard ted separately. No changes in the Management Boardof performs thefunctionsof theManagingDirector,isappoin Supervisory Board. The Chairman oftheBoard, who also of the Management Board, who are appointed by the for operationalmanagement.Therearefourmembers The Management Board of Eesti Energia AS is responsible Management Board and theagreementswithcompany’sothershareholders. internal rules,thesubsidiary’sArticlesofAssociation, thelaw as neededandarecalledforinaccordancewiththe Group’s Meetings oftheSupervisoryBoardssubsidiariestakeplace • exceptions includethefollowingsubsidiariesandassociates: of memberstheEestiEnergiaManagementBoard.The (Sandor Liive, Margus Kaasik, Andres Anijalg, Swee Huat (Sandor Liive,MargusKaasik,AndresAnijalg,SweeHuat (Sandor Liive, Rikki Lauren Hrenko, Margus Kaasik, Stuart (Sandor Liive,RikkiLaurenHrenko,MargusKaasik,Stuart Kalatšov, AlekseiMägi). Narva SoojusvõrkAS Andreas Orth,MathiasNoll), Enefit OutotecTechnologyOÜ Chan, SeokYeohHong,MohammadMaaitah), Enefit JordanB.V. Rose, MichaelPolt), Enefit AmericanOil (Sandor Liive, Margus Kaasik, Indrek Aarna, Peter Weber, (Sandor Liive,MargusKaasik,IndrekAarna,PeterWeber, (Tõnu Aas,ValeriTrubin,VladimirŠiškov, -

Contents 49 Eesti Energia Annual Report 2013 Corporate Governance and Risk Management MEMBERS OFTHEOARD:: of theGroup’stargets,valueaddedanditsmarketposition. salaries. Bonusmustbejustifiedandreflectachievement results oftheGroup,withmaximumbonusfourmonthly within therestrictionssetbyStateAssetsActand ment. Management Board members are also paid bonuses Board memberandcanonlybeamendedbymutualagree is set out in the agreement signed with the Management members of the Management Board. The remuneration are paidremunerationforfulfillingtheirresponsibilitiesas the Supervisory Board. Members of the Management Board Assets Act,underwhichthelevelofremunerationissetby Energia ManagementBoardareregulatedbytheState The principles ofremunerationforthemembersEesti • • • • EDUCATION: • • EXPERIENCE: 30 November2014 Expiration ofterm: 31 March1998) (Member oftheBoardsince CEO and 1 December2005 Board Date appointed: the of Chairman SANDOR LIIVE ment Program, 2007) INSEAD (Advanced Manage- IMD, Lausanne,Switzerland (2012,2004) (The effectiveuse ofpower,2012) Stanford GraduateSchoolofBusiness degree inFinancialManagement Tallinn TechnicalUniversity, Treasury, TallinnaSadam 1995–1998 CFO,headof 1998–2005 CFO,EestiEnergia

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• • • • • EXPERIENCE: 30 November2014 CFO 1 December2005 Board, of Member MARGUS KAAI Master inBusiness Administration Faculty ofEconomics, Tallinn universityof Technology, in BusinessAdministration Faculty ofEconomics,diploma Tallinn universityofTechnology, EDUCATION: Sumberg Grupp 1994–1999 CFO,Koger& service providerJaotusvõrk ger, Distributionnetwork 2000–2001 FinancialMana- ment Accounting,EestiEnergia 2001–2005 HeadofManage-

(40) - • • • • EDUCATION: • EXPERIENCE: 13 April2016 14 April2008 Board of Member MARGUS RINK Leadership Programme, 2012) (Advanced Management and Oxford SaidBusiness School tive Programme,2005) INSEAD (InternationalExecu- Business Administration University ofTartu,MA in FinancialManagement University ofTartu,degree (current Swedbank) and RetailBanking,Hansapank tions includingHeadofPersonal 1996–2008 differentposi- remuneration fortheManagementBoardmember. amount ofseverancepaymaynotexceedthreemonths’ initiative before the completion of the member’s term. The recalls amemberoftheManagementBoardatitsown Severance paymaybepaidonlyiftheSupervisoryBoard and theTotalRemunerationPaid: Participation ofManagementBoardMembersinMeetings Name Sandor Liive Sandor Margus Kaasik Margus Raine Pajo Margus Rink Margus

(41) Participation in meetings 44 49 49 49 Total remu Total neration in in neration • • • EDUCATION: • • EXPERIENCE: 30 November2014 1 December2006 Board of Member RAINE PAJO 2013 (€) 2013 122,864 122,048 182,629 122,670 MA inBusinessAdministration Tallinn University of Technology, M.Sc. andDoctorofEngineering Tallinn UniversityofTechnology, degree inElectricalEngineering Tallinn UniversityofTechnology, 1999–2000 FinnishTSOFingrid sion, Põhivõrk(currentElering) of theElectricalGridPlanningDivi- Development Department,Director ding MemberoftheBoard,Head 2000–2006 variouspositionsinclu- -

Total remu Total (37) neration in in neration 2012 (€) 2012 103,888 102,839 102,639 150,972 - Change 20% 19% 17% 21% Contents 50 Eesti Energia Annual Report 2013 Corporate Governance and Risk Management and optimumoutsourcingofservices. increasing efficiency,higherburdeningofgroupassets of management took place. The focus is still on principles. In2013nosignificantchangesinprinciples avai­ Group’s ManagementBoardisresponsibleforthe rated multi-directionalexchangeofinformation.The principles of management as awholesupportinginteg­ Eesti Energiatreatstheunambiguousandsimple ment takeplaceoncea month. the results.Ingeneral, meetings ofextendedmanage- Group principles,approval ofobjectivesandmonitoring extended management includes theimplementationof larger subsidiariesand supportservices.Theroleof the extendedmanagementincludesalso heads of In addition to Group’s Management Board members customer offermanagementgroup. extended management, oil shale management group and the groundsofvaluechainbasedmanagement model- the Group’svaluechain.Threebodiesofcooperation are levels intheGroupandexpandcooperationthroughout prompted bytheneedtolimitnumberofmanagement gement modelin the beginning of 2013. The change was was replaced with the Group’s value chain based mana- generation, retailbusiness)basedmanagementmodel The formerbusinessdivision(fuels,electricityandheat Management Groups Extended Managementand Clear andAcceptedPrinciplesofManagement lability, developmentandimplementationofthese rease the efficiency and develop the oil shale value chain. rease theefficiencyanddevelopoilshalevaluechain. The priorityoftheoilshalemanagementgroupistoinc tion network operator, must ensure, among other things, tion network operator,mustensure, amongotherthings, Under the Electricity Market Act, Elektrilevi, as the distribu Exception fromtheM anagement Structure • • • • • • • • • • achieve ourbusinessgoalsare: The supportservicesthatarerunatGroupleveltohelpus Support Services take placeonceaweek. and CommunicationDivisions.Ingeneral,themeetings Energy Trading, Elektrilevi, Business Technology and IT management groupincludestheheadsofEnergySale, mers. InadditiontomembersofManagementBoardthe to integratetheGroupoperationstargetingretailcusto The key goal of customer offer management group is diaries producingandexploitingoilshale. The management group includes also the head of subsi Communications andmarketing. Legal services, IT managementanddevelopment, Treasury, accountingandmanagementaccounting, Fire safety,emergencyrescueandsecurityservices, Real estateandtransportmanagement, Risk managementandinternalaudit, Environment safetymanagement, Human resourcesandtraining, Strategy development, - - - - Contents 51 Eesti Energia Annual Report 2013 Corporate Governance and Risk Management and developments. We constantly review the factors that and developments. Weconstantlyreview thefactorsthat which focuses onanalysingtheapplication ofinvestments and companies’results, andtheprojectbasedreporting based reportingwhichfocuses onavarietyoftheGroup’s Group. Thereisadistinction betweentheperformance- Management reporting is mainly used internally within the releasing theinformation. the Group’s rules for handling insider information before domestic mediachannels.Inbothcases,weadhere to is expectednottoimpacttheEurobondprice through using itsinformationsystem.Werelease that accordance with the rules of the London Stock Exchange that mayhaveanimpactonthepriceofEurobond in out informationthatconcernscompanyoperations and reporting of financial results of the Group’s units. We give Financial reportingmainlyfocusesontheconsolidated instead intocompetitiveadvantage. to beusedavoidrisksbeingrealisedandturnthem factual and forward-looking, allowing the best information top-quality management.Itisimportantthatreporting Getting sufficientandtimelyinformationisthebasisof Agreed ReportingPrinciples as farfinancialreportingisconcerned. We alsoclearlyseparateElektrilevifromothersegments confidentiality ofinformationaboutcustomercontracts. investments, conductingprocurementsandmaintainingthe structure, whichensureindependencewhendecidingon Energia hasimplementedexceptionsfromthemanagement dures andtechnologicalsolutions.ForthispurposeEesti between networkoperatorsandelectricitysellersbyproce that theaccesstocustomerandbusinessdataisseparated - Effective Supervision improve ourreporting. influence the achievement of the agreed goals in order to Committee are regulated by the State Assets Act. The work Committee are regulatedbytheState AssetsAct.Thework of remuneration formembersofthe EestiEnergiaAudit planning andevaluating theinternalaudit.Theprinciples ensuring theindependence oftheexternalauditandin the company’sactivities. TheCommitteeparticipatesin nal auditsystem,including riskmanagement;legalityof external audit; development and functioning of the inter budget andstatements;sufficiencyefficacy ofthe ting principles;preparationandapprovalofthe financial The Committeereviewsandmonitorsadherenceto accoun tion totheSupervisoryBoardinsupervisionrelated matters. primary function of the Committee is to provide consulta were appointed as the members of Audit Committee. The decision ofSupervisoryBoardKaieKarniolandKalle Palling of 2013theAuditCommitteehadfourmembers.With the AuthorisedPublicAccountantsAct.Inbeginning principally bythestatutesofAuditCommitteeand dural rules.WorkoftheAuditCommitteeisgoverned rights and duties in accordance with the approved proce Committee as its work body and assigned Audit Committee’s Eesti Energia Supervisory Board has appointed the Audit Audit Committee of ourgoalsasmuchpossible. activities inaflexiblemannerandsupporttheachievement serious risks.Risk-basedsupervisionallowsustoadaptour balanced supervisionsystem,whichfocusesonthemost Eesti Energia Group has implemented multi-level and - - - - Contents 52 Eesti Energia Annual Report 2013 Corporate Governance and Risk Management 2. the results of the final audit, at the meeting of the Audit 2. theresultsoffinal audit,atthemeetingofAudit 1. theresultsofinterim auditwerepresentedatthe PwC presenteditsresults intwostages: on EestiEnergia. the nextperiodandthushaveanegativefinancial impact believe thiscouldharmtheresultsofcompetition for does notpublishthefeepaidforauditservice aswe Vilu signstheconsolidatedannualreport.Eesti Energia the signatoryauditormaybedifferent.SwornAuditor Ago Depending onthecountrywherecompany is located the financialyears2011–2013 following acompetition. ting, which confirmed PwC as the financial auditor for the financialauditorisappointedbyGeneralMee- on Auditing.UnderEestiEnergia’sArticlesofAssociation, The financialauditisbasedontheInternationalStandards The Audit Committee’s approval is presented on page 63. procedural rules. 2013 theAuditCommitteefulfilleditsdutiessetforthin Board approvestheannualreport.Infinancialyear the Supervisory Boardbefore approval bythe Supervisory year. TheAuditCommitteesubmitstheannualreportto mittee submitsareporttotheSupervisoryBoardtwice 2013, eightordinarymeetingswereheld.TheAuditCom schedule, andatleastonceaquarter.Inthefinancialyear Meetings oftheAuditCommitteetakeplacetoanagreed mation aboutsubsidiariesthatitneedsforitsanalyses. of the Group allows the Audit Committee to get any infor do nothaveauditcommittees.Theinternalfunction Internal Audit Service Director of Eesti Energia. Subsidiaries of thecommitteeisorganisedbyRiskManagementand Committee on 20February2014. and meeting oftheAuditCommittee on19December2013, - - Members ofAuditCommittee and theTotalRemunerationPaid: Participation ofAuditCommitteeMembersin Meetings 21 September2014 Expiration ofterm 20 December2012 Date appointed Chairman ANDRES AAME Name 16 December2015 17 December2009 Member JÜRI KÄO Meelis Atonen Jüri Käo Jüri Meelis Virkebau Kaie Karniol Andres Saame Kalle Palling Kalle (48)

(54) Participation in meetings 16 December2015 17 December2009 Member MEELIS VIRKEBAU 16 December2015 17 December2009 Member MEELIS ATONE 8 8 8 8 5 5 Total remu Total neration in in neration 2013 (€) 2013 1,000 1,578 1,108 444 665 710 (47) -

(56) Total remu Total neration in in neration 18 June2016 23 May2013 Member KAIE ARNIOL 27 March2016 28 March2013 Member KALLE PAING 2012 (€) 1,424 532 621 931

- (43) Change Change (28) 108% (29)% 14% 11%

Contents 53 Eesti Energia Annual Report 2013 Corporate Governance and Risk Management A systemforreporting economicinterestshasbeen The internal audit reports are available to the auditor as well. was submittedtotheAudit Committeeon23January2014. need. Themanagement report forthefinancialyear2013 full independence and complete access to all the data they The internalauditdepartmentpersonnelareguaranteed risk managementandthebusiness culture. contribute toimprovingtheinternalcontrolenvironment, Committee. Theroleoftheinternalauditdepartment isto also evaluatedandapprovedbytheEestiEnergia Audit and theSupervisoryBoarditsplansreports are audits. ThedepartmentreportstotheAuditCommittee The internal audit department is responsible for the internal covers theentireGroup. Practices Framework.Theworkoftheinternalauditservice national audit standards of the International Professional The procedureofinternalauditingisbasedontheinter Internal Audit dards, internationalstandardsandotherexpectations. We findthattheauditfor2013meetsallregulatorystan that could have compromised the auditor’s independence. year 2013,PwCdidnotprovideEestiEnergiaanyservices services tothecompaniesinGroup.Infinancial to befollowediftheauditorintendsprovideadditional Audit Committeehasdrawnupasetofprinciplesthatare dence of the auditor and avoid any conflicts of interest. The Eesti Energiaconsidersitimportanttoprotecttheindepen page 142. The auditor’ opinion on the annual report is presented on - - -

self-assessment. interests andconfirmtheirindependencethroughregular interest intheirworkcandeclareowneconomic introduced whereemployeeswhomayhaveconflictsof information inthefinancial year2013. knowledge therewereno casesofthemisuseinsider lished procedurestoprotect insiderinformation.Toour To prevent the misuse of such information, we have estab information abouttheGroupthaninvestorsand public. some people connected with Eesti Energia will have more It isinevitablethatatcertaintimes,duetotheir position, financial statements. the financialyear2013canbefoundonpage136 ofthe conditions. Detailsoftransactionswithrelated parties in related partieswhichhavenotbeenconcludedon market financial year2013norhavetherebeentransactions with Boards ofsubsidiarieshadnoconflictsinterestinthe Group’s ManagementBoardandofthe To theknowledgeofEestiEnergia,members same manner. same amountofinformationatthetimeandin manner and on equal conditions, so that they all get the on EestiEnergiaanditssubsidiariesinatimely,consistent tial investorsmusthaveaccesstosignificantinformation ensure the fair trading of bonds. All bondholders and poten is importanttoprotecttheinterestsofbondholdersand Stock Exchange.Properhandlingofinsiderinformation as theGrouphasissuedEurobondslistedonLondon subject torequirementsconcerninginsiderinformation The handling of insider information in Eesti Energia is - - Contents 54 Eesti Energia Annual Report 2013 Corporate Governance and Risk Management Contents

There are several types of combined heat and power plants which can use various fuels. Co-generation is an efficient and environment friendly way to fuel use, since twice as much generated energy will be used compared to sole electricity pro- duction. The newest Eesti Energia combined heat and power unit is Iru Waste-to-Energy power unit, where mixed municipal waste is used to generate heat and power. Only generation unit Eesti Energia has outside Estonia is a small co-generation plant in Valka.

55 Risk ManagementMatrix impact ofmentionedrisks. loping andimprovingitsriskmanagementtominimisethe market andoperationalrisks.TheGroupisconstantlydeve Group’s operationsareaccompaniedbybusiness,financial, Risk Management HANDLING RISK management about risks Informing Risk to events ponding understanding Res-

Creating C a shared

o

m ofrisks

m

u

n

i

c - a

t

i MANAGEMENT

o

GOVERNANCE n management with the Linking GOALS system RISK

C than necessarytoachievethesetgoals. the Groupwouldnottakeorholdmoreunhedgedrisks The keyroleofGroup’sriskmanagementistoensurethat about risks decisions o informed m Making

Gathering m u nic data ation analysis Preparing the risk Risk profile ASSESSMENT RISK Contents 56 Eesti Energia Annual Report 2013 Corporate Governance and Risk Management categories isasfollows: distributed risks and our risk tolerance into four major categories. The Eesti Energia Group risk tolerance based on risk Risks affectingcurrentbusiness operationsanddevelopment projects areassessed separately inthe Group.Wehave ket andfinancialrisksintheGroupaccordancewith of Financial Risks to ensure the management of mar The Management Board has established the Committee influencing theoperationsandresultsofEestiEnergia. of allprocessesformanagementimportantrisks for thedevelopment,implementationandmaintenance Committee. Risk Management Department is responsible reporting to Chairmanof Management Board and Audit Risk ManagementandInternalAuditServicethatisdirectly ment isorganizedbyRiskManagementDepartment,partof Governance ofriskmanagement.TheGroupmanage risks Operational Financial risks Market riss Business risks Group controlsandminimises theserisksastheyareanintegralpart ofthebusinessoperations. Health andsafetyrisks Environmental risks core activity. tions. However,takingtheserisks will notbringadditionalrevenue to the GrouporitisnotGroup’s Group controlsandminimisestheserisks,asthey areanintegralpartoftheGroup’sbusinessopera- Group takeswell-consideredriskstoincreaserevenues. tion. environment, healthofpeopleandemployees and theGroup’sreputa- Risks theGroupisnotreadytotakeastaking them wouldthreatenthe - -

managed onanongoingbasis,andthattheydonotjeo Each company and unit in the Group ensures that risks are by theManagementBoard. existing managementprinciplesandstrategyapproved risk tolerance Group mustnotincurlossesthatexceedthelimitsofits tainably, shouldtherisksmaterialise.Inotherwords, that eachunitcancontinuetocarryoutitsfunctionssus- is anormalpartofbusiness,butthereshouldbecertainty pardise achievementofthecompany’sgoals.Takingrisks - Contents 57 Eesti Energia Annual Report 2013 Corporate Governance and Risk Management related reporting,anddeterminedthepartiesresponsibleformanagementofthoseriskswithinGroup. Risk assessmentandmanagement.Ineachcategory,wehavedevelopedspecificriskmanagementstrategies,measurement Market riss Business risks company. The Group’sinterestrate andcurrencyrisksaremanagedintheFinancial Departmentoftheparent le thattheshareoffixed interestrateborrowingsintheportfolioshould beover50%isfollowed. expenses increasewhen interestratesincrease.FormanagingtheGroup’s interestraterisks,theprincip- Interest raterisk free cashisalsodepositedineuros. Therefore alllong-termborrowingsandelectricity exportcontractsareconcludedineuros.AllGroup’s and thatisnothedgedwithfuturetransactions. Currencyrisksaremanagedthroughavoidingtherisk. Currency riskismostlyrelatedtothepartofshaleoilsalestransactions denominatedinUSdollars target basedonstrategyofhedgingtherisk variableprofit. positions basedontheGroup’sriskanalyses.The taskofEnergyTradingDepartmentistoachievethe predefined profitaftervariableexpenses.TheCommittee ofFinancialRiskssetsthetargetforclosed instruments tohedgeexposurefrompricerisk. Thepurposeofhedgingtransactionsistoensurethe of electricityandoilaswellCO of resourcesusedinproduction.Themostimportanttheseincludetherisksassociatedwith sale Price skaffectsthesaleofgoodsproducedandservicesprovidedbyGrouppurchase Price, currencyandexchangerateriskshavethemostsignificantimpactonGroup’sresults. advisors. The identificationofbusinessrisksisperformedregularlybyandproductmanagers legal Group, ongoing compliance monitoring and identifying cases of non-compliance and working with them. environment, participatinginthedevelopmentofnewregulations,implementingchangeswithin the The mainriskmanagementtoolsincludemonitoringthechangesanddevelopmentofpolitical legal tical decisions. rent operationsanddevelopmentprojectsindifferentmarketsdependonregulatoractions poli- Group’s businessrisksgenerallyarisefromchangesinpoliticalandlegalenvironments. cur- arises from floating interest rate borrowings and lies in the danger that financial arises fromfloatinginterest rateborrowingsandliesinthedangerthat financial 2 emissionallowance.TheGroupusesdifferentderivativefinancial Contents 58 Eesti Energia Annual Report 2013 Corporate Governance and Risk Management Financial risks of theparentcompany. measuring andmanagingregulation.TheGroup liquidityriskismanagedintheFinancialDepartment instruments suchasloans,bondsandcommercial papersinaccordancetotheinternalliquidityriks conditions orinalimitedtimeperiod.Liquidity riskismanagedthroughtheuseofvariousfinancial obligations forthenext12monthsorthatGroupneedstoraiseadditionalcashinnon-optimal means thattheGroupdoesnothavesufficientcashandotherliquidassetstomeetitsfinancial bank accountsdonothavesufficientcashtomeetitsfinancialobligations.Long-termliquidity risk Liquidity riskisconsideredintwodimensions.Short-termliquidityriskmeansthattheGroup petition isfiledatthecourtoracollectionagency. The remindersandwarningsaresenttocustomerswithoverdue.Ithasbeenagreedwhenacollection The unpaidinvoicesofclientsarehandledinthedepartmentsspecificallysetupforthispurpose. Financial Risks. Credit riskpositionscanonlybeopenedwiththepriorapprovalofcounterpartybyCommittee of tion andmaximumpositionofconcentrationriskbasedonthecreditlevelcounterparty. transactions. TheGrouphassetrequirementsoncreditriskcriteriaofcounterparty,term transac- The Grouphasasingleapproachtodepositingavailablemonetaryfundsandhandlingriskhedging and otherreceivablesareexposedtocreditrisk. Cash inbankdeposits,available-for-salefinancialassets,derivativeswithapositivevalue,and trade Liquidity andcreditrisksarefinancialaffectingtheGroup’sresults. Contents 59 Eesti Energia Annual Report 2013 Corporate Governance and Risk Management priate hedgingmethod. level ofloanratios.Theresults areusedtochooseappro- ting necessary loan ratios and maintainingtheoptimum profit targets,cashflows necessaryforinvestments,mee- the impactofuncertaintydifferentfactorson Group’s analysis isbasedonsimulationmethods,which analyse significantly theGroup’sriskanalysismethodology. Risk Group riskanalysismethodology.In2013weimproved risks Operational for developing,implementingandmaintaining the insuranceprogram. her hedgingoptions.Insuranceisbasedonrisk analysis.RiskManagementdepartmentisresponsible The Groupusesinsurancetohedgemajoroperational risksespeciallyincaseofthatlackanyot- tenance). units andallprocessphases(developmentprojects,tenders,construction,commissioning, main- The risksrelatedtoproduction,worksafetyandenvironmentareassessedmanagedinall Group of production. supervision andpreparationofservicecontinuityplan.Allthisisdonetoensurethecontinuation Tools tomanagerisksrelatedequipmentandsystemsincludemaintenanceplanning,constant of thetoolstomanageoperationalrisks. is one environmental requirements.Theimplementationofqualityandenvironmentmanagementsystems improving andimplementingsafetyrequirementsregulationsincreasingthecontrol over Considering theGroup’sfieldofoperationsfocusonmanagingoperationalriskslies on to achievethis,theGroupimprovesconstantlyinternalcontrolsystem. The coreaimofmanagingoperationalrisksistodiminishtheimpactunwantedevents.In order systems orexternalconditions. Operational risksarecausedbyinsufficientormalfunctioningprocesses,people,equipment, audit activities. Overview ofrisksisakey inputintheplanningofinternal profile. portance and reflectionofthose risks in the Group risk notification of Management Board of risks of high im- impacting the Group goals. TheGroup ensures instant Committee areregularlyreportedaboutimportant risks Risk reporting.GroupManagementBoardandAudit

Contents 60 Eesti Energia Annual Report 2013 Corporate Governance and Risk Management We haveevaluatedthestructureandfunctioningof financial year: between theCombinedCodeandouractivitiesin2013 The followinglegislativenon-conformitieswerefound the CombinedCode. more detail for the regulation of the principles laid out in likewise inconformitywithEstonianlaw,whichprovides in conformitywiththeCombinedCode.Ouractivitiesare essential part, the Group’s arrangements and activities are of theGroup’smanagementsystem,webelievethat,in Having evaluatedthestructureandactualfunctioning governance. aspects thatarematerialfromthestandpointofcorporate Reporting Council.Inthe sections above, we described all Corporate GovernanceoftheUnitedKingdom’sFinancial Group’s governanceonthebasisofCombinedCode Conformity toPrinciplesofGoodCorporateGovernance • • the CombinedCode,asunderArticles80and81 of Supervisory Boardmembersareatvariance from the regularityofandrulesforre-election of Communications andtheMinisterofFinance; the decisionofMinisterEconomicAffairs and ment ofSupervisoryBoardmemberstakesplace at Articles 80and 81ofthe StateAssets Act,the appoint no nomination committee has been set up, as under - We findthatthegovernanceofEestiEnergia complies reporting andauditing. with theBalticCoderecommendationsonmanagement, • • • • Minister ofEconomicAffairsandCommunications Board memberstakesplaceatthedecisionof the StateAssetsAct,appointmentofSupervisory to EestiEnergia,asitisastate-ownedbusiness. chapter Eondialoguewithentrepreneursdonot apply chapter Dondialoguewithinstitutionalinvestors and minister whoappointedhimorher; Supervisory Boardmemberisobligedtoreportthe as underSubsection84(1)oftheStateAssetsAct,a visory BoardisatvariancefromtheCombinedCode, the self-assessmentofactivitiesSuper by Articles85and86oftheStateAssetsAct; ment bodiesofstate-ownedcompaniesaregoverned principles ofremunerationmembersthemanage no remunerationcommitteehasbeensetup,asthe Board; Board takesplaceatthedecisionofSupervisory and appointment oftheChairman oftheManagement the electionofmembersManagementBoard and theMinisterofFinance; - - Contents 61 Eesti Energia Annual Report 2013 Corporate Governance and Risk Management annual reportandforthedatatherein. the Supervisory Board.The Management Boardisawareofandhereby confirms its responsibilityfor the preparation ofthe the SupervisoryBoard,hasactedwithinitspowersandsubmittedallofinformationnecessary fordecision-makingto Management Board,and led the EestiEnergiaGroup to achieveits targets. The ManagementBoard has regularly reportedto In thefinancialyear2013,EestiEnergiaManagementBoardcompliedasrequiredwith the dutiesofmembers Representation oftheManagementBoard Sandor Liive Chairman oftheManagementBoard 20 February2014 Margus Rink Raine Pajo Margus Kaasik Members oftheManagementBoard Contents 62 Eesti Energia Annual Report 2013 Corporate Governance and Risk Management 20 February2014 Member oftheAuditCommittee Andres Saame We havesubmittedourassessmentswiththeactivity reporttotheSupervisoryBoardofEestiEnergiaon20February2014. Annual Reportforthefinancialyear2013. Eesti EnergiaGroupdonotshowanyflawsofwhich themanagementisunawareorwhichcouldhaveamaterialimpacton The AuditCommitteeasthebodythatcreatesconfidenceandisresponsibleforsupervision finds thattheactivitiesof During thefinancialyear2013,wehaveassessedfollowingpointsthatanimpacton theoperationsofGroup: members oftheManagementBoardouropinionsandrelatedsuggestionsbasedon work oftheCommittee. available tous.Well-definedreportinglineshaveensuredafluentflowofnecessaryinformation tous.Wehaveinformedthe activity. Norestrictionshavebeenimposedonouractions,andtheGroup’srepresentatives made allnecessaryinformation The workoftheAuditCommitteeinfinancialyear2013hasbeenbasedonstatutes theCommitteeanditsplanof Representation oftheAuditCommittee • • • • • • the organisationofinternalaudit. the legalityofcompany’sactivities,and the developmentandfunctioningofinternalauditsystem, the sufficiencyandeffectivenessofexternalauditassuranceitsindependence, the preparationandapprovaloffinancialbudgetstatements, adherence toaccountingprinciples, Contents 63 Eesti Energia Annual Report 2013 Corporate Governance and Risk Management Contents

An average of between 300–400 hopper wagons, or in cold winter up to 600 wagons, of oil shale is delivered from the mines every day. That is to say 11.4 km of trains are needed each day to bring oil shale to the power plants. The total length of the oil shale trains that visit the power plants in one year is the same as the distance from Tallinn to London and back.

64 The notesonpages 70-141areanintegralpartof theseconsolidatedfinancialstatements. Consolidated IncomeStatement Statements Consolidated Financial PRTN PROFIT OPERATING EUR million in Other operatingOther expenses used Raw materials and consumables goods and work-in-progress and goods finished of inventories in Change Other operatingOther income equity method equity using associates from (loss) Profit Net financial income (-expense) Financial expenses income Financial Impairment Depreciation and amortisation expenses Payroll Revenue

1 January -31 December 1 January (148.2) (1 .9) (118 966.4 (419.6) (85.5) (16.1) (11.4) 175.5 2013 (1.2) (4.4) (0.8) 8.8 8.8 3.2 3.2

(1 0) . (115 (151.6) (380.4) (68.0) (63.3) 822.1 822.1 100.1 (5.2) 46.4 46.4 2012 (8.4) (0.2) 3.2 3.2 9.9 9.9

5, 6, 8, 32 8, 6, 5, 5, 6, 32 6, 5, 5, 9,5, 32 5, 30 5, 5, 25 5, Note 30 30 29 26 28 27 YEAR THE FOR PROFIT PROFIT BEFORE TAX Diluted earnings per share (euros) share per (euros) earnings share Diluted per earnings Basic EUR million in U ATTRIB PROFIT Non-controlling interest Company Parent the of holder Equity Corporate income tax expense TABLE TO: 1 January -31 December 1 January 173.5 173.5 159.5 159.5 159.5 159.5 (14.0) 0.26 0.26 0.26 2013 0.0 0.0 (17.8) 76.9 76.9 94.7 94.7 2012 (0.4) 77.3 77.3 0.14 0.14 0.14 Note 36 36 31 5 Contents 65 Eesti Energia Annual Report 2013 Consolidated Financial Statements The notesonpages 70-141areanintegralpartof theseconsolidatedfinancialstatements. Consolidated StatementofComprehensiveIncome YEAR THE FOR TOTAL COMPREHENSIVE INCOME YEAR THE FOR PROFIT EUR million in Non-controlling interest Equity holder of the Parent Company ATTRIB year the for Other comprehensive income to foreignattributable subsidiaries translation differencesCurrency Revaluation of hedging instruments loss: or profit to subsequently reclassified be may that Items Other comprehensive income U TO: TABLE

1 January -31 December 1 January 193.4 193.4 193.4 193.4 159.5 159.5 2013 35.5 35.5 (1.6) 33.9 33.9 0.0 0.0

76.9 76.9 10.8 10.8 88.1 (0.4) 2012 11.9 11.9 (1.1) 87.7 87.7

Note 20 Contents 66 Eesti Energia Annual Report 2013 Consolidated Financial Statements The notesonpages 70-141areanintegralpartof theseconsolidatedfinancialstatements. Consolidated StatementofFinancialPosition assets Total assets Current Non-current assets ASSETS EUR million in Long-term receivables instruments financial Derivative than three months more of maturities with banks at Deposits assets non-current Total assets current Total Investments in associates Inventories Cash andCash equivalents cash loss or profit through value fair at assets Financial instruments financial Derivative receivables other and Trade Greenhouse gas allowances assets Intangible Property, plant and equipment and plant Property,

2,368.3 2,817.9 2,817.9 2,258.1 2,258.1 449.6 449.6 100.4 100.4 31 December 185.1 185.1 62.2 62.2 62.6 62.6 2013 22.4 22.4 39.1 39.1 19.4 19.4 41.4 41.4 21.0 21.0 6.2 -

2,497.4 2,497.4 2,101.9 2,101.9 1,988.4 1,988.4 395.5 395.5 174.6 174.6 48.3 48.3 26.0 26.0 2012 58.7 58.7 60.1 60.1 21.3 21.3 11. 6 6 11. 90.0 90.0 9.2 9.2 7.5 7.5 1.7 1.7

11, 14, 16 11, 13, 14 11, 13, 14 11, 14, 17 11, 15 11, Note 5,9 10 12 12 8 8 6 5 Total liabilities Total equity and liabilities Total Current liabilities Current Non-controlling interest Non-current liabilities Non-current LIABILITIES equity Total Company Parent the of holder equity to attributable reserves and Capital EQ EUR million in Total current liabilities current Total Provisions Deferred income instruments financial Derivative Trade and other payables Borrowings Total non-current liabilities non-current Total Provisions Deferred income instruments financial Derivate payablesOther Borrowings equity holder of the Parent Company Parent the of holder equity to attributable reserves and equity Total earnings Retained Unrealised exchange rate differences Hedge reserve Statutory reserve capital reserve Statutory Share premium Share capital U ITY

1,270.2 1,270.2 2,817.9 2,817.9 1,547.7 1,547.7 1, 011.1 011.1 1, 1,546.3 1,546.3 826.5 826.5 259.8 259.8 566.1 566.1 259.1 259.1 31 December 178.4 178.4 621.6 621.6 151.0 151.0 28.8 28.8 73.3 73.3 2013 47.0 47.0 51.0 51.0 0.8 0.8 3.5 3.5 3.3 3.3 2.5 2.5 1.4 1.4 1.5 1.5 1.4 1.4

2,497.4 2,497.4 1,409.1 1,409.1 1,088.3 1,408.1 1,408.1 894.6 894.6 465.6 465.6 259.8 259.8 193.7 193.7 136.6 136.6 621.6 621.6 731.4 731.4 174.9 174.9 23.9 23.9 2012 12.9 12.9 47.2 47.2 11. 5 5 11. 0.3 0.3 2.4 2.4 1.0 1.0 2.4 2.4 2.4 2.4 1.4 1.4 2.1 2.1

11, 21 11, 11, 21 11, 11, 13 11, 11, 13 11, Note 20 22 22 23 23 24 24 18 18 18 Contents 67 Eesti Energia Annual Report 2013 Consolidated Financial Statements The notesonpages 70-141areanintegralpartof theseconsolidatedfinancialstatements. Consolidated StatementofCashFlows EUR million in activities operating from flows Cash activities financing from flows Cash activities investing from flows Cash flows cash Net Net change in cash restricted from being used used being from restricted cash in change Net 3months than more of maturities with banks at deposits in change Net Dividens received from long-term financial investments Cash generated from operations Loans repayments Net increase/(-)decrease in cash and cash equivalents cash and cash in increase/(-)decrease Net period the of end at equivalents cash and Cash Corporate income paid tax received Interest Proceeds from grants of property, plant and equipment and plant property, of grants from Proceeds equipment and plant property, of sale from Proceeds paid fees loan and Interest Net cash used in investing activities investing in used cash Net subsidiaries of disposal from Proceeds acquired cash of net subsidiaries, of Acquisiton investments financial short-term of redemption and sale from Proceeds investments financial short-term of Purchase granted Loans Loans received Loans Cash and cash equivalents at beginning of the period the of beginning at equivalents cash and Cash capital share the to Contribution Repayments of other loans Repayments of bank loans issued bonds from Proceeds Proceeds from and connection other fees assets intangible and equipment and plant property, of Purchase activities operating from generated cash Net Purchase of shareholding in associate in shareholding of Purchase Dividends paid Net cash used in financing activities financing in used cash Net 1 January -31 December 1 January (281.0) (387.4) 244,6 285.9 (55.2) (31.8) 2013 (10.1) 38.9 96.2 62.6 69.0 (0.8) (0.2) (3.8) 60.1 (3.0) 13.5 13.9 (4.7) (1.3) 2.5 2.5 0.6 6.4 4.4 9.4 1.5 - - - - (548.9) (499.4) 382.9 185,2 (90.0) (26.2) 150.0 (65.2) (26.4) 297.0 227.4 (16.4) (19.3) 2012 (17.1) 40.9 19.2 19.2 32.8 60.1 (5.2) 15.0 22.1 27.5 2.2 5.0 2.9 1.4 1.1 - - - 11, 14, 16 11, 14, 17 11, 14, 17 Note 34 23 32 35 21 21 18 19 12 15 15 9 Contents 68 Eesti Energia Annual Report 2013 Consolidated Financial Statements The notesonpages 70-141areanintegralpartof theseconsolidatedfinancialstatements. Consolidated StatementofChangesinEquity directly indirectly equity recognised company, the of owners to distributions and by contributions Total Equity as at 31 December 2013 31 at as December Equity Profit for the year the for Profit 2012 31 at as December Equity indirectly equity recognised company, the of owners to distributions and by contributions Total Other comprehensiveOther income for the year into equity the conversion of debt subsidiary’s to due interest non-controlling of Increase capital reserve statutory to earning retained of Transfer Dividends paid Total comprehensive income for the year Contribution to the share capital share the to Contribution Dividends paid Other comprehensiveOther income for the year Total comprehensive income for the year Profit for the year the for Profit Equity as at 31 December 2011 31 at as December Equity in million EUR EUR million in

capital 150.0 150.0 621.6 621.6 621.6 621.6 150.0 150.0 471.6 471.6 Share ------premium Company the of holder equity to Attributable 259.8 259.8 259.8 259.8 259.8 259.8 Share ------Statutory reserve capital 47.2 47.2 47.2 47.2 51.0 51.0 3.8 3.8 3.8 3.8 ------

reserves Other 33.9 33.9 10.8 10.8 33.9 33.9 13.9 13.9 10.8 10.8 47.8 47.8 3.1 3.1 ------Retained Retained earnings 465.6 465.6 453.5 453.5 (65.2) (59.0) 566.1 566.1 159.5 159.5 (65.2) (55.2) 159.5 159.5 77.3 77.3 (3.8) 77.3 77.3 - - - - 1,546.3 1,546.3 1,235.2 1,235.2 1,408.1 1,408.1 (55.2) 193.4 193.4 150.0 150.0 (65.2) (55.2) 159.5 159.5 84.8 84.8 88.1 33.9 33.9 10.8 10.8 77.3 77.3 Total - - controlling interest (0.4) (0.4) Non- 0.4 0.4 0.4 0.4 1.0 1.0 1.4 1.4 1.4 1.4 ------1,236.6 1,236.6 1,409.1 1,409.1 1,547.7 1,547.7 (54.8) 193.4 193.4 150.0 150.0 (65.2) (55.2) 159.5 159.5 equity 84.8 84.8 33.9 33.9 10.8 10.8 76.9 76.9 87.7 87.7 Total 0.4 0.4 - 19, 31 19, 19, 31 19, Note Contents 69 Eesti Energia Annual Report 2013 Consolidated Financial Statements horised for issue bytheGeneral Meeting ofShareholders. by the Supervisory Board of the Parent Company and aut of Estonia,theannualreportmustadditionallybe approved ruary 2014.UndertheCommercialCodeof Republic authorised forissuebytheManagementBoardon 19Feb These consolidated financial statements of the Group were of EestiEnergiaASarelistedonLondonStockExchange. of Eesti Energia AS is the Republic of Estonia. The bonds Tallinn 12915,RepublicofEstonia.Thesoleshareholder The registered address of the Parent Company is Laki 24, operate inJordan. Germany. The Group has investments inassociateswhich The GroupoperateintheBaltics,Finland,USAand ricity andfueltosales,maintenanceadditionalservices. customers withcomplexenergysolutionsfromheat,elect Eesti Energiaisaninternationalcompanythatprovides associated entities. subsidiaries (the Group) and theGroup’s participation in company, legalform:publiclimitedcompany)andits financial informationconcerningEestiEnergiaAS(parent Group fortheyearended31December2013include The consolidatedfinancialstatementsofEestiEnergia 1. GeneralInformation Notes totheConsolidatedFinancialStatements - - - 2. SummaryofPrincipalAccounting disclosed inNote4. significant totheconsolidated financialstatementsare of judgement and where assumptions and estimates are reporting policies.The areas involvingahigherdegree in theprocessofapplyingGroup’saccounting and tes. Italsorequiresmanagementtoexerciseitsjudgement IFRS requirestheuseofcertaincriticalaccounting estima The preparationoffinancialstatementsinconformity with through profitandloss. (including derivativefinancialinstruments)at fair value by available-for-saleandfinancialassets liabilities pared underthehistoricalcostconvention,as modified The consolidatedfinancialstatementshavebeenpre adopted bytheEuropeanUnion. Reporting Standards (IFR S) andIFRICInterpretations,as been preparedinaccordancewiththeInternationalFinancial The consolidatedfinancialstatementsoftheGrouphave 2.1 BasisofPreparation unless otherwisestated. been consistentlyusedforallreportingperiodspresented, set out below. These accounting and reporting policies have preparation oftheseconsolidatedfinancialstatementsare The principalaccountingandreportingpoliciesusedinthe and ReportingPolicies - - Contents 70 Eesti Energia Annual Report 2013 Consolidated Financial Statements became effectivefortheGroupfrom1January2013: The followingneworrevisedstandardsandinterpretations (a) AdoptionofNeworRevisedStandardsandInterpretations 2.2 ChangesinAccountingPolicyandDisclosures • • • comprehensive income. has changedto‘statementofprofitorlossandother loss in the future. The suggested title used by IAS 1 whether or nottheymaybe reclassified to profit or comprehensive incomeintotwogroups,basedon 1. IAS to Comprehensive require entitiestoseparateitemspresentedinother Other of amendments Items Income, of „Presentation Note 3.4in these financialstatements. The amendmentsresulted inadditionaldisclosures of set-off. tial effectofnettingarrangements, includingrights 7. financial statementstoevaluate theeffectorpoten IFRS Financial to and Assets requires disclosuresthatwillenableusersofanentity’s Amendments - Financial Liabilities Disclosures—Offsetting vative financialinstruments. 3.3 about the estimation of the fair value of the deri The standardresultedinadditionaldisclosures Note rements foruseacrossIFRSs. source offairvaluemeasurementanddisclosurerequi viding areviseddefinitionoffairvalueandsingle Measurement. to improveconsistencyandreducecomplexitybypro Value Fair 13, IFRS impact onmeasurementoftransactionsandbalances. tion ofthecomprehensiveincome,butdidnothaveany The amendedstandardresultedinchangedpresenta The amendments The standard aims The standardaims The amendment The amendment - - - - - (b) Newstandardsandinterpretationsnotyetadopted expected tohaveamaterialimpacttheGroup. year beginning on or after 1. January 2013 that would be tations thatareeffectiveforthefirsttimefinancial There arenootherneworrevisedstandardsinterpre • following setoutbelow: consolidated financialstatementsofthegroup,except of these is expectedtohaveasignificanteffectonthe preparing theseconsolidatedfinancialstatements.None ning after1January2014,andhavenotbeenappliedin and interpretationsareeffectiveforannualperiodsbegin A number of new standards and amendments to standards 2. 1. and November2013areasfollows: Measu and 2009 and amended in October 2010, December 2011 Classification Instruments: rement. Financial 9, IFRS

measured at fairvaluethroughprofit orloss. loan features”). All otherdebt instruments are to be principal andinterestonly (thatis,ithasonly“basic asset’s contractualcash flows representpaymentsof asset tocollectthecontractual cashflows,and(ii)the objective oftheentity’sbusinessmodelistohold the sed costonlyifitisadebtinstrumentandboth(i) the An instrumentissubsequentlymeasuredatamorti - ristics oftheinstrument. instruments andthecontractualcashflowcharacte on theentity’sbusinessmodelformanagingitsfinancial made at initial recognition. The classification depends subsequently atamortisedcost.Thedecisionis to be subsequently at fairvalue,and those to be measured two measurementcategories:thosetobemeasured Financial assetsare required tobeclassified into Key features of the standard issued in November Key features of the standard issued in November - - - - Contents 71 Eesti Energia Annual Report 2013 Consolidated Financial Statements intend toadopttheexisting versionofIFRS9. lication ofthestandard voluntary.TheGroupdoesnot removed itsmandatory effective date,thusmakingapp- The amendmentsmadetoIFRS9inNovember 2013 5. 4. 3.

Most of the requirements in IAS 39 for classification Most oftherequirementsinIAS39forclassification a returnoninvestment. presented inprofitorloss,aslongtheyrepresent instrument-by-instrument basis.Dividendsaretobe to profitorloss.Thiselectionmaybemadeonan is tobenorecyclingoffairvaluegainsandlosses comprehensive income rather than profit or loss. There and realised fair value gains and losses through other be madeatinitialrecognition,torecogniseunrealised address accountingformacrohedging. all hedgesbecausethestandardcurrentlydoes not rements of IFRS 9andcontinuing to applyIAS 39 to choice betweenapplyingthehedgeaccountingrequi standard providesentitieswithanaccountingpolicy accounting morecloselywithriskmanagement. The income. fair value through profit or loss in other comprehensive in owncreditriskoffinancialliabilitiesdesignatedat entity willberequiredtopresenttheeffectsofchanges forward unchangedtoIFRS9.Thekeychangeisthatan and measurement of financial liabilities were carried Hedge accounting requirements were amended to align Hedge accountingrequirementswereamendedto align all other equity investments, an irrevocable election can all other equity investments, anirrevocableelectioncan will bemeasuredatfairvaluethroughprofitorloss.For at fair value. Equity instruments that are held for trading All equityinstrumentsaretobemeasuredsubsequently - • • dation - special purpose entities”. IFRS 10 changes separate financialstatements”andSIC-12“Consoli- control andconsolidationinIAS27“Consolidated 2014. Thestandardreplacesalloftheguidanceon Statements. Financial dard willbemandatoryfortheGroupfrom1January Consolidated 10, IFRS (ii) extended disclosures on share of non-controlling (ii) extendeddisclosures onshareof non-controlling or significantlyinfluences itsinterestsinotherentities, determining whether an entity controls, jointly controls, (i) significantjudgements andassumptionsmadein requires disclosuresinanumberofareas,including entities. Tomeettheseobjectives,thenewstandard joint arrangementsandunconsolidatedstructured ted withtheentity’sinterestsinsubsidiaries,associates, evaluate thenature,risksandfinancialeffectsassocia information thathelpsfinancialstatementreaders to associates”. IFRS 12 requires entities to disclose rements currently found inIAS28“Investments in arrangements, andreplacesthedisclosurerequi Consolidated financial statements, and IFRS 11, Joint ties reportingunderthetwonewstandards:IFRS10, IFRS 12setsouttherequireddisclosuresforenti- an associate or an unconsolidated structured entity. have aninterestinasubsidiary,joint arrangement, Entities. Other in 1 January2014.Thestandardappliestoentitiesthat Interest of The standardwillbemandatoryfortheGroupfrom Disclosure 12, IFRS of subsidiariesandassociatedcompanies. The standardmayhaveaneffectontherecognition nition issupportedbyextensiveapplicationguidance. applied toallentities todetermine control. This defi the definitionofcontrolsothatsamecriteriaare Thestan - - - -

Contents 72 Eesti Energia Annual Report 2013 Consolidated Financial Statements • • • financial statements.Theguidanceoncontrolandcon tures andassociateswhenanentitypreparesseparate requirements for investments in subsidiaries, joint ven standard is to prescribe the accounting and disclosure Statements. Financial from 1January2014.Theobjectiveoftherevised Separate The amendedstandardwillbemandatoryfortheGroup 2011), (revised 27 IAS disclosed intheconsolidatedfinancialstatements. The standardrequiresadditionalinformationtobe of interestsinunconsolidatedstructuredentities. non-controlling interests,and(iv)detaileddisclosures rised financialinformationofsubsidiarieswithmaterial interests ingroupactivitiesandcashflows,(iii)summa Transition Guidance - Amendments to IFRS 10, IFRS IFRS 10, IFRS to 12. IFRS Amendments - and 11 Guidance Transition statement offinancialposition. of thefinancialassetsand financialliabilitiesinthe The standardmayhave an effectontherecognition equivalent tonetsettlement. that somegrosssettlementsystemsmaybeconsidered rently hasalegallyenforceablerightofset-off’ and criteria. Thisincludesclarifyingthemeaningof ‘cur- sistencies identified in applying some of the offsetting added application guidance to IAS 32 to address incon Liabilities, 32. Financial for theGroupfrom1January2014.Theamendment IAS to and Assets amendments Financial Offsetting the parentcompany’sseparatefinancialstatements. The standardmayhaveaneffectonthedisclosuresin Consolidated FinancialStatements. solidated financialstatementswasreplacedbyIFRS10, The standard will be mandatory for The standard will be mandatory The standardwillbemandatory - - - -

• • which IFRS 10 is adopted, and if the consolidation conc assess controlatthefirstdayofannualperiodin Financial Statements.EntitiesadoptingIFRS10should clarify thetransitionguidanceinIFRS10,Consolidated Amendments to IAS 39 - Novation of Derivatives and and Accounting. Derivatives of Hedge be mandatory for the Group from 1 January 2014. of Novation - 39 IAS Continuation to Amendments in thefinancialstatements. The standardmayhave aneffectonthedisclosures no impairment. indefinite livedintangibleassetsbuttherehas been recoverable amount when a CGU contains goodwill or amendments removetherequirementtodisclose the disc assets. amount mandatory fortheGroupfrom1January2014. The non-financial Recoverable - for 36 IAS losures to Amendments of subsidiariesandassociatedcompanies. The standardmayhaveaneffectontherecognition entities forperiodsbeforeIFRS12isfirstapplied. for disclosuresrelatedtounconsolidatedstructured the requirementtopresentcomparativeinformation parative period.Further,theamendmentswillremove information onlyfortheimmediatelyprecedingcom the requirement to provide adjusted comparative Disclosure ofInterestsinOtherEntities,bylimiting in IFRS 10, IFRS 11, Joint Arrangements, and IFRS 12, amendments alsoprovideadditionaltransitionrelief IFRS 10in2013)isrestated,unlessimpracticable.The year 2012 for acalendar year-end entity that adopts the immediatelyprecedingcomparativeperiod(thatis, lusion under IFRS 10 differs from IAS 27 and SIC 12, the Group from 1January2014.The amendments The standard will be Thestandardwillbe The standard will Thestandardwill - - -

Contents 73 Eesti Energia Annual Report 2013 Consolidated Financial Statements to haveamaterialimpactontheGroup. tations thatarenotyeteffectivewouldbeexpected There arenootherneworrevisedstandardsinterpre- from thedate thatcontrolceases. control istransferredtothe Groupandarede-consolidated Subsidiaries are fully consolidated from the date on which and operatingpolicies,etc. shareholders givetheGroup thepowertogovernfinancial rights relative to the size and dispersion of holdings of other arise incircumstanceswherethesizeofGroup’s voting policies by virtue of de-facto control. De-facto control may voting powerbutisabletogovernthefinancialand operating tence ofcontrolwhereitdoesnothavemorethan50% ofthe Group controlsanotherentity.Thealsoassesses exis or convertibleareconsideredwhenassessingwhether the effect of potential voting rights that arecurrently exercisable of morethanonehalfthevotingrights.Theexistence and and operatingpoliciesgenerallyaccompanyingashareholding over whichtheGrouphaspowertogovernfinancial Subsidiaries areallentities(includingspecialpurposeentities) (a) Subsidiaries 2.3 PreparationofConsolidatedFinancialStatements of thederivativesinfinancialstatements. The standardmayhaveaneffectontherecognition conditions aremet. counterparty asaresultoflawsorregulation,ifspecific terparty withanewone)toeffectclearingcentral (i.e partieshaveagreedtoreplacetheiroriginalcoun been designatedasahedginginstrument,isnovated continue inasituationwherederivative,whichhas The amendmentswillallowhedgeaccountingto - -

the equity interests issued by the Group. The consideration the equityinterestsissuedbyGroup.Theconsideration values of the assets transferred, the liabilities incurred and transferred for the acquisitionofa subsidiary is the fair to accountforbusinesscombinations.Theconsideration The Group uses the acquisition method of accounting gate of the consideration transferred and the fair value of gate oftheconsideration transferred andthefairvalueof Goodwill isinitiallymeasured astheexcessofaggre­ for withinequity. remeasured, anditssubsequent settlementisaccounted Contingent considerationthatisclassifiedasequity isnot or lossasachangetoothercomprehensive income. is recognisedinaccordancewithIAS39either inprofit consideration thatisdeemedtobeanassetor liability Subsequent changestothefairvalueofcontingent Group isrecognizedatfairvaluetheacquisition date. Any contingent consideration to be transferred by the profit orloss. is remeasuredtofairvalueattheacquisitiondatethrough acquirer’s previouslyheldequityinterestintheacquiree If thebusinesscombinationisachievedinstages, Acquisition-related costsareexpensedasincurred. acquiree’s netassets. the non-controllinginterest’sproportionateshareof an acquisition-byacquisitionbasis,eitheratfairvalueor recognises anynon-controllinginterestinthe acquiree on initially at their fair values at the acquisition date. The Group liabilities assumed in a business combination are measured Identifiable assets acquired and liabilities and contingent resulting from acontingentconsideration arrangement. transferred includesthefairvalueofanyassetorliability

Contents 74 Eesti Energia Annual Report 2013 Consolidated Financial Statements the entity is remeasured to its fair value at the date when the entityisremeasured toitsfairvalueatthedatewhen When Groupceasestohave controlanyretainedinterestin (c) Disposalofsubsidiaries interests arealsorecorded inequity.. in equity.Gainsandlossesondisposalstonon-controlling the carryingvalueofnetassetssubsidiaryis recorded any considerationpaidand the relevant share acquired of capacity asowners.Thedifferencebetweenfair valueof sactions –thatis,astransactionswiththeowners intheir result inlossofcontrolareaccountedforasequity tran Transactions withnon-controllingintereststhat donot change ofcontrol (b) Changesinownershipinterestssubsidiaries without ration arisingfromcontingentconsiderationamendments. impairment. Costisadjustedtoreflectchangesinconside investments insubsidiariesareaccountedforatcostless In theParentCompany’sseparatefinancialstatements adopted bytheGroup. where necessarytoensureconsistencywiththepolicies accounting policiesofsubsidiarieshavebeenadjusted Parent Companyanditssubsidiariesareeliminated.The profits which arise as a result of transactions between the receivables, liabilities, income, expenses and unrealised subsidiaries areconsolidatedonaline-by-linebasis.The the financialstatementsofParentCompanyandits In preparationofconsolidatedfinancialstatements, acquired, thedifferenceisrecognizedinprofitorloss. lower thanthefairvalueofnetassetssubsidiary acquired andliabilitiesassumed.Iftheconsiderationis non-controlling interestoverthenetidentifiableassets - - financial asset.Inaddition,anyamountspreviouslyrecogni for theretainedinterestasanassociate,jointventureor rying amountforthepurposesofsubsequentlyaccounting recognised inprofitorloss.Thefairvalueistheinitialcar the controlislost,withchangeincarryingamount the carrying amount of the investment. When the Group’s the carryingamountof investment.WhentheGroup’s comprehensive incomewith acorrespondingadjustmentto other comprehensiveincome isrecogniseddirectlyinother share ofpost-acquisition movementsintheassociate’s or lossesisrecognised in theincomestatementandits The Group’s share of its associates’ post-acquisition profits income isreclassifiedtoprofitorlosswhereappropriate. the amounts previously recognised in other comprehensive nificant influenceisretained,onlyaproportionate shareof If theownershipinterestinanassociateisreduced butsig- acquisition. investment in associates includes goodwill identified on of the investee after the date of acquisition. The Group’s the investor’sshareofcomprehensiveincome(loss) the carryingamountisincreasedordecreasedtorecognise the equitymethodandareinitiallyrecognisedatcost, rights. Investmentsinassociatesareaccountedforusing a shareholdingofbetween20%and50%thevoting ficant influencebutnotcontrol,generallyaccompanying Associates areallentitiesoverwhichtheGrouphassigni (d) Associates income arereclassifiedtoprofitorloss. amounts previouslyrecognisedinothercomprehensive of the relatedassetsand liabilities. This may mean that are accountedforasiftheGrouphaddirectlydisposed sed inother comprehensive income in respect of that entity - - - Contents 75 Eesti Energia Annual Report 2013 Consolidated Financial Statements the ParentCompany. the resultsof the segment,isManagement Boardof the allocationofresources tothesegmentandevaluates operating decision-maker, which makes decisions regarding management decisions and analysetheresults.Thechief to the chief operating decision-maker in order to make in thesamemannerthatreportingisperformed internally and informationregardingoperatingsegmentsis disclosed For thepurposeofsegmentreporting,operating segments 2.4 SegmentReporting policies adoptedbytheGroup. adjusted wherenecessarytoensureconsistency withthe ferred. Theaccountingpoliciesofassociateshave been provides evidenceofanimpairmenttheassettrans- Unrealised lossesareeliminatedunlessthetransaction extent ofunrelatedinvestor’sinterestsintheassociates. recognised intheGroup’sfinancialstatementsonlyto ream transactionsbetweentheGroupanditsassociateare Profits andlossesresultingfromupstreamdownst- profit/loss oftheassociates”inincomestatement. and recognisestheamountadjacentto“Shareofother recoverable amountoftheassociateandiscarryingvalue the amount of impairment asthe difference between the associate isimpaired.Ifthisthecase,Groupcalculates there isanyobjectiveevidencethattheinvestmentin The Groupdeterminesateachreportingdatewhether of theassociate. it hasincurredobligationsormadepaymentsonbehalf the Groupdoesnotrecogniseanyfurtherlosses,unless in theassociate,includinganyotherunsecuredreceivables, share of losses in an associate equals or exceeds its interest environment as their functional currency. The consolidated environment astheirfunctionalcurrency.Theconsolidated Group entitiesusethecurrencyoftheirprimaryeconomic (a) Functionalandpresentationcurrency Liabilities DenominatedinaForeignCurrency 2.5 ForeignCurrencyTransactionsandAssets operating income or other operating expenses. operating income orotheroperating expenses. foreign exchangegainsand lossesarerecognisedasother equivalents arereported as financeincomeandcosts;other losses from the revaluation of borrowings and cash and cash are recognisedinothercomprehensive income.Gainsand hedging instrumentsrecognisedaseffectivehedges, which except forgainsandlossesfromtherevaluationof cashflow from translationarerecognisedintheincomestatement, does notquotetheparticularcurrency.Profitsand losses issuing theforeigncurrencywhenEuropeanCentral Bank the officialexchangerateofcentralbank country Bank prevailingatthebalancesheetdateoron basisof using theofficialexchangerateofEuropean Central liabilities denominated in foreign currencies are translated are reportedintheincomestatement.Monetaryassetsand ferences resultingfromthesettlementofsuchtransactions issuing thecurrencyisusedasbasis.Exchangeratedif the officialexchangerateagainstEuroofcentralbank European CentralBankdoesnotquoteaparticularcurrency, Central Bankprevailingatthetransactiondate.When nal currencyusingtheofficialexchangeratesofEuropean Foreign currencytransactionsaretranslatedintothefunctio denominated inaforeigncurrency (b) Foreigncurrencytransactionsandassetsliabilities rounded tothenearestmillion,unlessstatedotherwise. currency oftheGroup.Thefinancialstatementshavebeen tional currencyofthe parent company and presentation financial statements are presented ineuros, that is the func - - -

Contents 76 Eesti Energia Annual Report 2013 Consolidated Financial Statements as current.Liabilities whoseduedate isduringthenext the normaloperatingcycle oftheGroupareconsidered ted tobedisposedofduring thenextfinancialyearorduring financial position as current or non-current. Assets expec Assets andliabilitiesare classifiedinthestatementof or Non-current 2.6 Classification of Assets and Liabilities as Current inflationary economy. None ofthesubsidiariesinGroupoperates ahyper- closing exchangerateprevailingatthebalancesheet date. liabilities ofthesubsidiaryandaretranslated using the of theassetsandliabilitiesaretreatedas and the adjustmentstofairvalueofcarryingamounts Goodwill whicharoseontheacquisitionofasubsidiaryand ex­ the presentationcurrencyofGroup,following When thesubsidiary’sfunctionalcurrencyisdifferentfrom (c) Consolidationofforeignsubsidiaries • • • change rates are used to translate the financial statements: at thedatesoftransactions);and case incomeandexpensesaretranslatedattherate the ratesprevailingattransactiondates,inwhich a reasonable approximation of the cumulative effect of exchange rateoftheperiod(unlessthisaverageisnot income andexpensesaretranslatedattheaverage sheet; the EuropeanCentralBankatdateofthatbalance assets and liabilities are translated at the closing rate of differences”. as aseparateequityitem“Unrealisedexchangerate the resultingexchangedifferencesarerecognised - liabilities areclassifiedasnon-current. the Group are considered as current. Allother assets and next financialyearorduringthenormaloperatingcycleof financial yearorthatareexpectedtobesettledduringthe when the construction of the asset is completed or when when the construction of the asset is completed orwhen commenced. Capitalisation of borrowing costs is ceased have beenincurredand the constructionofassethas sed if the borrowing costs and expenditures for the asset the itembeingconstructed. Borrowingcostsarecapitali borrowing costs(interest)arecapitalisedinthe costof funded with a loan or other debt instrument, the related equipment lastsforasubstantialperiodoftime andis When the construction of an item of property, plant and plant andequipment. components aredepreciatedasseparateitemsof property, components withsignificantlydifferentusefullives, these If anitemofproperty,plantandequipmentconsists of of materials,servicesandpayrollexpenses. items ofproperty,plantandequipmentincludesthecost mentation oftheasset.Thecostself-constructed other directexpensesrelatedtotheacquisitionorimple the purchaseprice,transportationcosts,installation,and items. Thecostofpurchasednon-currentassetscomprises diture thatisdirectlyattributabletotheacquisitionof and anyimpairmentlosses.Historicalcostincludesexpen position athistoricalcostlessanyaccumulateddepreciation and equipmentarepresentedinthestatementoffinancial an expectedusefullifeofoveroneyear.Property,plant that areusedintheoperatingactivitiesofGroupwith Property, plantandequipment(PPE)aretangibleitems 2.7 Property,lantandEquipment - - - Contents 77 Eesti Energia Annual Report 2013 Consolidated Financial Statements case ofsignificantchanges indevelopmentplans.When when subsequentexpenditures arerecognisedandinthe equipment are reviewed during the annual stocktaking, The expectedusefullives ofitemsproperty,plantand useful livesareasfollows: over the estimated useful life of the asset. The estimated plant andequipmentiscalculatedonastraight-linebasis Land isnotdepreciated.Depreciationofotherproperty, income statement. to ongoingmaintenanceandrepairsarechargedthe the replaced item of PPE is de-recognised. Costs related sured reliably.Thereplacedcomponentorproportionof flow totheGroupandcostofassetcanbemea future economicbenefitsassociatedwiththeassetswill nised as a separateassetonlywhenitisprobablethat the itemofproperty,plantandequipmentorarerecog plant and equipment are added to the carrying amount of Subsequent expenditures incurredforitems of property, period oftime. the constructionhasbeensuspendedforanextended Machinery and equipment, including equipment, and Machinery including Facilities, Buildings Other property, plant and equipment property, Other other machinery and equipment other machinery equipment plant power equipment transmission facilities other lines electricity 255 ers year 12.5–50 30–40 years 10–40 years 10–40 5–40 years 5–40 3–30 years –0yars r yea 7–20 3–8 years 3–8 - - charge ofthefollowingperiodsalsochanges. the assetischanged,asaresultofwhichdepreciation the accountingestimate,andremainingusefullifeof from the previous estimate,itistreatedasa change in the estimatedusefullifeofanassetdifferssignificantly expenses” respectively. items under“Otheroperatingincome”or gains and losses are recognised in the income statement assets soldissubtractedfromtheproceeds.Theresulting perty, plantandequipment,thecarryingamountof To determinethegainsandlossesfromsaleofpro (Note 2.9). the recoverable amount is less than the carrying amount Assets arewrittendowntotheirrecoverableamountwhen goodwill). Intangible assets with indefinite useful lives and goodwill). Intangibleassets withindefiniteusefullivesand for itemsofproperty,plant andequipment(exceptfor impairment indicators,similarly tothetestingofimpairment Intangible assetsaretested forimpairmentifthereareany the straight-linemethodoverusefullifeof the asset. Intangible assets (exceptfor goodwill) are amortisedusing financial position onlyif thefollowing conditions are met: Intangible assetsarerecognisedinthestatementof 2.8 IntangibleAssets • • • the costofassetcanbemeasuredreliably. are attributabletotheassetwillflowGroup; it isprobablethatthefutureeconomicbenefits that the assetiscontrolledbyGroup; - Contents 78 Eesti Energia Annual Report 2013 Consolidated Financial Statements intangible assetsnotyetavailableforusearetested products or processes. Development costs are capitalised products or processes. Development costsarecapitalised research findingsforthe developmentofspecificnew Development costs are costs that are incurred inapplying (b) Developmentcosts as partofthecarrying amount ofthesubsidiary. amount ofgoodwillrelatingtotheentitysoldis regarded gains andlossesonthedisposalofasubsidiary, carrying less anyimpairmentlosses)(Note2.9).Whendetermining statement of financial position at the carrying amount (cost on goodwillarenotreversed.Goodwillisreported inthe this islowerthanthecarryingamount.Impairment losses Goodwill is written down to its recoverable amount when a groupofunits,notlargerthananoperating segment. arose. Goodwillisallocatedtoacashgenerating unitor synergies of the business combination in which the goodwill cash-generating unitsthatareexpectedtobenefitfromthe circumstances demandsit).Theallocationismadetothose ting period(ormorefrequentlyifaneventorchangein an impairmenttestisperformedattheendofeachrepor testing, goodwill is allocated to cash-generating units and to amortisation. Instead, forthe purpose of impairment Goodwill acquiredinabusinesscombinationisnotsubject non-controlling interestintheacquiree. tingent liabilitiesoftheacquireeandfairvalue fair value of the net identifiable assets, liabilities and con consideration transferredovertheGroup’sinterestinnet tes andjointventuresrepresentstheexcessof Goodwill arisesontheacquisitionofsubsidiaries,associa (a) Goodwill with theirrecoverableamount. impairment annuallybycomparingtheircarryingamount - - - unity, research carried out for collecting new scientific or unity, researchcarriedoutforcollectingnewscientificor to beused.Expensesrelatedstartingupanewbusiness over theperiodduringwhichproductsareexpected been met.Capitaliseddevelopmentcostsareamortised if allofthecriteriaforrecognitionspecifiedinIAS38have following criteriaaremet: by theGrouparerecognisedasintangibleassets when the to the design of identifiablesoftware products controlled Software developmentcoststhataredirectlyattributable the relatedhardwareisrecognisedasanintangibleasset. Acquired computersoftwarewhichisnotanintegralpartof software programsarerecognisedasanexpenseincurred. Costs associatedwiththeongoingmaintenanceofcomputer (d) Computersoftware over theexpecteddurationofcontractualright. ractual rightsareamortisedusingthestraight-linebasis carried at cost less any accumulated amortisation. Cont recognised at fair value on acquisition and are subsequently Contractual rightsacquiredinabusinesscombinationare (c) Contractualrights technical information and training costs are not capitalised. • • • • • product are available; completing the developmentandusing thesoftware adequate technical,financial andotherresourcesfor generate probablefuture economicbenefits; it canbedemonstrated how thesoftwareproductwill there isacapabilitytousethesoftwareproduct; and useit; management intendstocompletethesoftwareproduct so thatitwillbeavailableforuse; it istechnicallyfeasibletocompletethesoftwareproduct - Contents 79 Eesti Energia Annual Report 2013 Consolidated Financial Statements free ofcharge.(Note2.24). owned by the Group or that will be allocated to the Group price of the greenhouse gasemission allowances that are for greenhousegasemissionsissetupinthe average the Grouphasaplan to sell theallowances.Theprovision emission allowancesmorethanpresumablyneeded and ket price,iftheGrouphasacquiredgreenhouse gas allowances are recognised atpurchase cost orat themar are recognisedatzerocost.Anyadditionallypurchased emission allowances received from the state free of charge Group areaccountedforascurrentasset.Greenhouse gas Greenhouse gasemissionallowancescontrollable bythe (f) Greenhousegasemissionallowances period, notexceeding99years. of uselandaredepreciatedaccordingtothecontract recognised as intangible assets. The costs related to rights meeting thecriteriaforrecognitionasintangibleassetsare Payments madeforrightsofsuperficiesandservitudes (e) Rightofuseland seven years)usingthestraight-linemethod. amortised overtheirestimatedusefullives(notexceeding sequent period.Computersoftwaredevelopmentcostsare expenses arenotrecognisedasintangibleassetsinasub tures incurredforsoftwarewhichareinitiallyrecognisedas criteria are recognisedasanexpenseincurred.Expendi Other development expenditures that donotmeet these expenses andanappropriateportionofrelatedoverheads. Capitalised softwaredevelopmentcostsincludepayroll • during itsdevelopmentcanbereliablymeasured. the expenditureattributabletosoftwareproduct - - - and geophysical studies; exploratory drilling; sampling and and geophysical studies; exploratory drilling; sampling and of rightstoexplore; topographical, geological, geochemical of explorationandevaluationassetsincludetheacquisition Expenditures thatareincludedintheinitialmeasurement (g) Explorationandevaluationassetsofmineralresources tances arepresent: (Note 2.9)whenoneormoreofthefollowingcircums- Exploration and evaluation assets are tested for impairment cost model. exploration andevaluationassets are measuredusing the recognised asintangibleassets.Afterinitialrecognition, equipment, other exploration and evaluation assets are facilities iscapitalisedwithinitemsofproperty,plantand construction, installation and completionofinfrastructure items of property, plant and equipment. Expenditure on the and evaluationassetsareclassifiedasintangibleor cost. Dependingonthenatureofasset,exploration Exploration and evaluation assets are initially recognised at and economicviabilityofextractingamineralresource. activities relatedtoevaluationofthetechnicalfeasibility • • • in thespecific area; the Grouphasdecided to discontinuesuchactivities commercially viablequantities ofmineralresourcesand in thespecificareahave notledtothediscoveryof exploration forandevaluation ofmineralresources neither budgetednorplanned; evaluation ofmineralresourcesinthespecificarea is substantive expenditureonfutureexplorationfor and be renewed; will expireinthenearfuture,andisnotexpected to in thespecificareahasexpiredduringperiod or theperiodforwhichGrouphasrighttoexplore Contents 80 Eesti Energia Annual Report 2013 Consolidated Financial Statements (h) Miningrights their presentvalue. the expected future cash flows generated by the asset to its valueinuse.The inuseiscalculatedbydiscounting determined reliably,therecoverable amountoftheassetis If thefairvalueofasset lesscoststosellcannotbe recoverable amountisthehigherofasset’s: amount ifthelatterislowerthancarryingamount. The be recoverable. Assets are written down to their recoverable circumstances indicate that the carrying amount may not reviewed for impairment whenever events or changes in that aresubjecttoamortisation/depreciationandland amortisation butaretestedannuallyforimpairment.Assets or intangibleassetsnotreadytouse)aresubject Assets thathaveindefiniteusefullives(forexamplegoodwill 2.9 ImpairmentofNon-financialAssets in expensesasincurred(Note2.22). to thevolumeofnaturalresourcesextractedisrecognised fee forextractednaturalresourcesthatispaidaccording the state free of charge are recognised at zero cost. The the expected realisation period. Mining rights received from as currentornon-currentintangibleassetsdependingon Mining rightscontrollablebytheGroupareaccountedfor • • • development orbysale. asset isunlikelytoberecoveredinfullfromsuccessful carrying amount of the exploration and evaluation lopment inthespecificareaislikelytoproceed, sufficient data exist to indicate that, although a deve value inuse. fair valuelesscostsofselling;and - indicators ofimpairmentexist: An impairmenttestiscarriedoutifanyofthefollowing longer exist or may have decreased. If any such indication longer existormayhave decreased.Ifanysuchindication in thepriorperiodsforan assetotherthangoodwillmayno there isanyindicationthat theimpairmentlossrecognised At the end of each reporting period, it is assessed whether sed immediatelyasanexpenseintheincomestatement. assets orgroupsofassets.Animpairmentlossis recogni largely independent of the cash inflows generated by other that generates cash inflows from continuing use that are generating unitisthesmallestidentifiablegroup ofassets asset orgroupofassets (cash-generating unit).Acash- Impairment testsareperformedeitherforan individual an impairmenttestisperformed. If the Group identifies any other evidence of impairment, • • • • • • • ned tobeterminated. the activities ofacertaincash generating unit areplan ted; results of some operating areas are worse than expec revenue generated by assets is lower than expected; deteriorated; the physical condition of the assets has considerably the futurecashflowsgeneratedbyassetswilldecrease; situation haveworsened,andthereforeitislikelythat market interestrateshaveincreased; the generaleconomicenvironmentandmarket the marketvalueofsimilarassetshasdecreased; - - - Contents 81 Eesti Energia Annual Report 2013 Consolidated Financial Statements are classifiedascurrent assets. and effectivehedginginstruments. Assetsinthiscategory fair valuethroughprofit or lossunlesstheyaredesignated selling in the short term. Derivatives are also recognised at financial assetsheldfortrading,acquiredthepurpose of Financial assetsatfairvaluethroughprofitor lossare (a) Financialassetsatfairvaluethroughprofitorloss assets atinitialrecognition. Management determinestheclassificationofits financial on thepurposeforwhichfinancialassetswere acquired. sale andloansreceivables.Theclassification depends categories: atfairvaluethroughprofitorloss,available-for- The Group classifies its financial assets in the following 2.11.1 Classification 2.11 FinancialAssets and fairvaluelesscostsofselling. probable. Theyarestatedatthelowerofcarryingamount through continuinguse,andasaleisconsideredhighly recovered principallythroughasaletransactionratherthan assets heldforsalewhentheircarryingamountistobe Non-current assets(ordisposalgroups)areclassifiedas Held-for-sale 2.10 Non-CurrentAssets(orDisposalGroups) for goodwill shall not bereversedina subsequent period. partially orwhollyreversed.Animpairmentlossrecognised the resultsofestimate,impairmentlosscanbe exists, therecoverableamountisestimated.Accordingto assets unlesstheinvestmentmaturesormanagement of theothercategories.Theyareincludedinnon-current are either designated in this category ornot classified in any Available-for-sale financialassetsarenon-derivativesthat (b) Available-for-salefinancialassets 2.11.2 Recognitionandmeasurement and otherreceivables”. banks withmaturitiesofmorethanthreemonths”,“Trade position lines“Cashandcashequivalents”,“Depositsat and receivables are included in the statement of financial they areclassifiedasnon-currentassets.TheGroup’sloans 12 months after the end of reporting period. In such case, current assets, except for those with maturities of more than in anactivemarket.Loansandreceivablesareincluded with fixedordeterminablepaymentsthatarenotquoted Loans andreceivablesarenon-derivativefinancialassets (c) Loansandreceivables the reportingperiods. intends todisposeofitwithin12monthstheend available-for salearesubsequently carriedatfairvalue. Financial assetsatfair value throughprofitorlossand substantially allrisksand rewardsincidentaltoownership. or havebeentransferred andtheGrouphastransferred to receive cash flows from the investments have expired ment. Financialassetsarede-recognisedwhen the rights and transactioncostsareexpensedintheincome state- through profitorlossareinitiallyrecognisedat fair value, plus transactioncosts.Financialassetscarriedat fair value through profitorlossare initiallyrecognisedatfair value method. Investmentswhicharenotcarriedat fair value nised orde-recognisedusingthetrade-dateaccounting Regular purchases and sales of financial assets are recog - Contents 82 Eesti Energia Annual Report 2013 Consolidated Financial Statements on thequotesofexchange. each reportingperiod.Thefairvalueofderivatives isbased which are based on the market conditions at the end of uses severaldifferentmeasuresandmakesassumptions intermediaries andestimatedcashflowanalysis.The Group instruments thataresubstantiallythesame,quotes by financial asset,theseincludethelistedmarket prices of valuation techniquesareused.Dependingonthe typeof To findthefairvalueofunquotedfinancialassets, various bid pricesprevailingattheendofreporting period. The fairvaluesofquotedinvestmentsarebasedonthe comprehensive income. available-for-sale financial assets is recognised in other The profit/loss from the changes in the fair value of the period. profit orlossinthecurrentandcomparativereporting income on financial assets recognised at fair value through The Grouphasnotreceivedanyinterestincomeordividend in theincomestatementline“Financialincome”(Note30). financial assetsandonloansreceivablesisreported incurred (Note30).Interestincomeonavailable-for-sale income (-expense)”intheperiodinwhichtheyariseorare are presented inthe income statement line “Net financial of thefinancialassetsatfairvaluethroughprofitorloss Gains andlossesarisingfromchangesinthefairvalue the effectiveinterestmethod. Loans andreceivablesarecarriedatamortisedcostusing the assetandsettleliabilitysimultaneously. and thereisanintentiontosettleonanetbasisorrealise legally enforceablerighttooffsettherecognisedamounts amount reportedinthebalancesheetwhenthereisa Financial assetsandliabilitiesareoffsetthenet 2.12 OffsettingFinancialInstruments rying amountandthepresent valueofestimatedfuture is measuredasthedifference betweentheasset’scar- For loansandreceivables categorytheamountofloss arrears oreconomicconditionsthatcorrelatewith defaults. rease in the estimated future cash flows, such as changes in observable dataindicatethatthereisameasurable dec- bankruptcy orotherfinancialreorganisation,and where principal payments,the probability that theywill enter financial difficulty,defaultordelinquencyininterest or debtors or a group of debtors is experiencing significant Evidence of impairment may include indications that the assets thatcanbereliablyestimated. future cashflowsofthefinancialassetorgroup that lossevent(orevents)hasanimpactontheestimated after theinitialrecognitionofasset(alossevent)and impairment asaresultofoneormoreeventsthatoccurred losses areincurredonlyifthereisobjectiveevidenceof or a group of financial assets is impaired and impairment or groupoffinancialassetsisimpaired.Aasset whether thereisobjectiveevidencethatafinancialasset The Groupassessesattheendofeachreportingperiod (a) Assetscarriedatamortisedcost 2.13 ImpairmentofFinancialAssets Contents 83 Eesti Energia Annual Report 2013 Consolidated Financial Statements recognised in the consolidated income statement on equity recognised in the consolidated income statement on equity equity and recognisedinprofitorloss. Impairmentlosses previously recognisedin profitorloss–isremovedfrom fair value,lessanyimpairment lossonthatfinancialasset difference betweenthe acquisitioncostandthecurrent financial assets,thecumulativeloss–measured asthe impaired. If any such evidence exists for available-for-sale security belowitscostisalsoevidencethattheassets are a significantorprolongeddeclineinthefairvalue ofthe case of equity investments classified as available for sale, the Groupusescriteriareferredtoin(a)above. Inthe a groupoffinancialassetsisimpaired.Fordebt securities, whether thereisobjectiveevidencethatafinancial assetor The groupassessesattheendofeachreporting period (b) Assetsclassifiedasavailableforsale recognised intheconsolidatedincomestatement. reversal ofthepreviouslyrecognisedimpairmentlossis (such asanimprovementinthedebtor’screditrating), to aneventoccurringaftertheimpairmentwasrecognised loss decreasesandthedecreasecanberelatedobjectively If, inasubsequentperiod,theamountofimpairment market price. basis ofaninstrument’sfairvalueusingobservable expedient, thegroupmaymeasureimpairmenton interest ratedeterminedunderthecontract.Asapractical for measuringanyimpairmentlossisthecurrenteffective rity investmenthasavariableinterestrate,thediscountrate consolidated incomestatement.Ifaloanorheld-to-matu reduced andtheamountoflossisrecognisedin effective interestrate.Thecarryingamountoftheassetis been incurred)discountedatthefinancialasset’soriginal cash flows(excludingfuturecreditlossesthathavenot - event occurring after the impairment loss was recognised event occurring after the impairment losswas recognised reases andtheincreasecanbeobjectivelyrelatedtoan of adebtinstrumentclassifiedasavailableforsaleinc- income statement.If,inasubsequentperiod,thefairvalue instruments arenotreversedthroughtheconsolidated of thehedgereservereported inequityaredisclosed hedging purposes are disclosed in Note 13. The movements The fairvaluesofderivative financialinstrumentsusedfor the hedgeditems. highly effectiveinoffsettingchangesthecash flowsof the derivativesthatareusedinhedgingtransactions are at hedgeinceptionandonanongoingbasis,of whether The Groupalsodocumentsitsassessmentandtests, both and strategyforundertakingvarioushedgetransactions. hedged items,andalsoitsriskmanagementobjectives the relationshipbetweenhedginginstruments andthe The Groupdocumentsattheinceptionoftransaction prices ofshaleoilandelectricity. instruments inorder to hedge the riskofchanges the itembeinghedged.TheGroupusescashflowhedging nated as a hedging instrument, and if it is, the nature of gains orlossesdependsonwhetherthederivativeisdesig reporting period. The method for recognising the resulting they are re-measured to their fair value at the end of each a derivativecontractisenteredinto.Afterinitialrecognition Derivatives areinitiallyrecognisedatfairvaluethedate Activities 2.14 Derivative F the profitorloss. in profitorloss,theimpairmentlossisreversedthrough inancial I nstruments and Hedging - Contents 84 Eesti Energia Annual Report 2013 Consolidated Financial Statements acquisition ofallcomponents. at fairvaluewithchanges throughprofitorlossuntilthe components ofderivative instruments,arerecognised Hedging instruments,which arecombinedfromvarious income oroperatingexpensesinthestatement. in equityisimmediatelyrecognisedasotheroperating to occur,thecumulativegainorlossthatwas reported ment. When a forecast transaction is no longer expected transaction is ultimately recognised in the income state remains inequityandisrecognisedwhenthe forecast any cumulativegainorlossexistinginequityat that time hedge no longer meets the criteria for hedge accounting, When ahedginginstrumentexpiresorissold, whena hedged takesplace). profit orloss(forinstancewhentheforecastsalethatis statement intheperiodswhenhedgeditemaffects Amounts accumulatedinequityarerecycledtheincome operating incomeorexpenses. in theincomestatementasanetamountwithinother loss fromtheineffectiveportionisrecognisedimmediately is recognisedinothercomprehensiveincome.Thegainor vatives that are designated and qualify as cash flow hedges The effectiveportionofchangesinthefairvaluederi (a) Cashflowhedge for tradingareclassifiedascurrentassetsorliabilities. the hedged item is less than 12 months. Derivatives held as acurrentassetorliabilityiftheremainingmaturityof maturity ofthehedgeditemismorethan12monthsand sified asanon-currentassetorliabilityiftheremaining Note 20.Thefullfairvalueofhedgingderivativesisclas - - - such derivatives are included within other operating income such derivativesareincludedwithinotheroperatingincome gains and losses arising from changes in the fair value of ments are carried at fair value through profit or loss. The Derivatives whicharenotdesignatedashedginginstru- (b) Derivativesatfairvaluethroughprofitorloss described above. own usetreatment,areaccountedforasderivatives as for ownusetreatment.Contractsthatdonotqualify for to cash,thecontractsareevaluatedseeifthey qualify dity thatisthesubjectofcontractsreadilyconvertible net in cash or another financial instrument or the commo If thetermsofcontractspermiteitherpartyto settleit intangible assets. the settlementdatearerecognizedasprepayments for Group. Anypaymentsmadetothecounterpartybefore occurs andemissionsallowancesaretransferredtothe as intangibleassetswhensettlementoffuturecontract sheet; theemissionsallowancespurchasedarerecognized purposes arenotrecognizedasderivativesonthebalance that arenecessaryfortheGroup’selectricityproduction contracts forbuyinggreenhousegasemissionsallowances hases ofunderlyingcommodities.Forexample,anyfutures purchase requirementsareaccountedfor as regular purc lying commodityinaccordancewiththeGroup’sexpected to beheldforthepurposeofreceiptunder- Derivative contractsthatareenteredintouseand continue (c) Derivativesatownuse or operatingexpensesintheincomestatement. - - Contents 85 Eesti Energia Annual Report 2013 Consolidated Financial Statements considered indicators that the trade receivable is impaired. considered indicatorsthat thetradereceivableisimpaired. delinquency inpayments (morethan90daysoverdue)are enter bankruptcyorfinancial reorganisation,anddefaultor ficulties ofthedebtor, probabilitythatthedebtorwill the originalterms ofreceivables.Significantfinancialdif will notbeabletocollectallamountsdueaccording to lished whenthereisobjectiveevidencethatthe Group A provisionfortheimpairmentoftradereceivables isestab effective interest rate method, less any impairment losses. and subsequentlymeasuredatamortisedcost using the Trade receivables are initially recognised at fair value course ofbusiness. merchandise sold or services performed in the ordinary Trade receivablesareamountsduefromcustomersfor 2.16 TradeReceivables expenses. ordinary courseofbusiness, lessapplicablevariableselling Net realisablevalueistheestimatedsellingpricein to thepurchase. diture ontransportationandothercostsdirectlyrelated and othermaterialsconsistsofthepurchaseprice,expen capacity), but it excludes borrowing costs.Thecost of raw related productionoverheads(basedonnormaloperating rises rawmaterials,directlabour,othercostsand The costoffinishedgoodsandworkinprogresscomp- hted averagemethodisusedtoexpenseinventories. at thelowerofcostornetrealisablevalue.Theweig Inventories arestatedinthestatementoffinancialposition 2.15 Inventories - - - -

of the provision is the difference between the asset’s car adjusted totakeaccountofcurrentconditions.Theamount using previousyears’experienceofimpairmentwhichis the receivablesarecollectivelyassessedforimpairment, Material receivablesareassessedindividually.Therestof 3 monthsorless. term highlyliquidinvestments withoriginalmaturitiesof account balancesandcashintransitaswell as short- Cash andcashequivalentsincludeonhand, bank 2.17 CashandEquivalents until thematuritydateusingeffectiveinterest rate. recognised asinterestincomeduringtheperiodremaining value and the present value of the collectible receivable is collectible amount.Thedifferencebetweenthe nominal from customers are recognised at the present value of the presented asnon-currentassets.Long-termreceivables vables are classified as current assets. If not, they are If collection is expected within one year or less, the recei other operatingexpenses. written offarecreditedintheincomestatementagainst receivables. Subsequent recoveries of amounts previously it iswrittenoffagainsttheallowanceaccountfortrade expenses. Whenareceivableisclassifiedasuncollectible, recognised intheincomestatementwithinotheroperating use ofanallowanceaccount,andtheamountlossis The carryingamountoftheassetisreducedthrough cash flows,discountedattheoriginaleffectiveinterestrate. rying amountandthepresentvalueofestimatedfuture - - Contents 86 Eesti Energia Annual Report 2013 Consolidated Financial Statements net of transaction costs incurred, and are subsequently net oftransactioncosts incurred,andaresubsequently Borrowings areinitially recognisedatfairvalue, 2.20 Borrowings rate method. measured atamortisedcostusingtheeffective interest les are initially recognised at fair value and subsequently they arepresentedasnon-currentliabilities.Trade payab liabilities ifpaymentisduewithinoneyearorless. Ifnot, from suppliers. Accounts payables are classified as current that havebeenacquiredintheordinarycourseof business Trade payables are obligations to pay for goods or services 2.19 TradePayables from distributableequity,ortoincreasesharecapital. capital maybeusedtocoveralossthatcannotcovered reserve reaches the limit set for reserve capital. Reserve capital is 1/20 of the net profit of the financial year until the capital. Theamountofallocationtoannualstatutoryreserve tions, theminimumamountofwhichis1/10share up statutory reserve capital from annual net profit alloca The CommercialCoderequirestheParentCompanytoset “Unregistered sharecapital”. the Commercial Registry are recognised in the equity line approved at the General Meeting but not yet registered in treated asdirectlyattributableincrementalcosts.Shares reduction ofequityundertheassumptionthattheyare related totheissuanceofsharesarerecognisedasa shares havebeenissued.Thetransactionscostsdirectly Ordinary sharesareincludedwithinequity.Nopreferred 2.18 ShareCapitalandStatutoryReserve - -

effective interest method. effective interestmethod. statement overtheperiodofborrowingusing cost andtheredemptionvalueisrecognisedinincome measured atamortisedcost.Anydifferencebetweenthe in theperiodwhichthey areincurred. All otherborrowingcosts arerecognisedinprofitorloss for capitalisation. fying assets is deducted from the borrowing costs eligible of specificborrowingspendingtheirexpenditure on quali­ Investment income earned on the temporary investment assets aresubstantiallyreadyfortheirintendeduse orsale are addedtothecostofthoseassets,untilsuchtime asthe period oftimetogetreadyfortheirintendeduse orsale, assets, whichareassetsthatnecessarilytakeasubstantial to theacquisition,constructionorproductionofqualifying General andspecificborrowingcostsdirectlyattributable 2.21 BorrowingCosts period. the liabilityforatleast12monthsafterendofreporting Group hasanunconditionalrighttodeferthesettlementof Borrowings are recognised as current liabilities unless the cost whenthedraw-downoccurs. In thiscase,thefeeisdeferredandtreatedasatransaction probable thatsomeorallofthefacilitywillbedrawndown. nised astransactioncostsoftheloantoextentthatitis Fees paid on the establishment of loan facilities are recog - Contents 87 Eesti Energia Annual Report 2013 Consolidated Financial Statements of theactualpaymentdateorperiodforwhich in theperiodwhichdividendsaredeclared,regardless ment ofdividendsisaccountedforasaliabilityandexpense expense. Thecorporateincometaxarisingfromthepay to distributedividendswithoutanyadditionalincometax earnings is21/79.Incertaincircumstances,itpossible 2008, the tax rate on the net dividends paid out of retained and adjustmentsofthetransferprice.From1January entertaining guests,non-businessrelateddisbursements paid ondividends,fringebenefits,gifts,donations,costsof entities isnottaxedinEstonia.Corporateincometax Under theIncomeTaxAct,annualprofitearnedby (a) CorporateincometaxondividendsinEstonia 2.22 Taxation - Due tothenatureoftaxationsystem,entitiesregis 10th dayofthemonthfollowingpaymentdividends. dividends arepaid.Theincometaxliabilityisdueonthe disclosed inthenotestofinancialstatement. would accompanythedistributionofretainedearningsis financial position. The maximum income tax liability which payment of dividends is not recognised in the statement of tingent incometaxliabilitywhichwouldariseuponthe no deferredincometaxassetsandliabilitiesarise.Acon tax basesofassetsandtheircarryingamountshence, tered inEstoniadonothaveanydifferencesbetweenthe - - Contents 88 Eesti Energia Annual Report 2013 Consolidated Financial Statements (c) Incometaxratesinforeigncountrieswhichthe Groupoperates The followingtaxeshadaneffectontheGroup’sexpenses: (b) OthertaxesinEstonia related expenses related Corporate income on tax non-business shale oil on tax Excise oil shale on tax Excise the USA the Finland Lithuania Latvia Jordan Water utilisation charges shale oil for right extraction for Fee charges Pollution tax income benefit Fringe Unemployment insurance tax tax security Social Tax Excise tax on natural gas natural on tax Excise electricity on tax Excise trucks heavy Tax on tax Land 21/79 on non-business related expenses 2012 (in giga-joule 0.15 giga-joule) per per euros euros 0.30 oil shale of kg 1000 15.01 per euros Income earned by resident legal persons is taxed at an income tax rate of 35% of rate tax income an at taxed is persons legal resident by earned Income 24.5% of rate tax income an at taxed is persons legal resident by earned Income 15% of rate tax income an at taxed is persons legal resident by earned Income 15% of rate tax income an at taxed is persons legal resident by earned Income 14-30% of rate tax income an at taxed is Jordan in persons legal resident by earned Income 1.59-152.74 m 1000 per euros extracted) shale oil of 2012 (in tonne per 1.32 euros extracted shale oil of tonne per 1.39 euros waste of type and tonnage on based and storage, waste and soil water, ground air, water, the of contamination for Paid employees to paid benefits 21/79 fringe of 2012 (in 1.4%) employees to paid payroll 1.0% the of benefits fringe of and employees to paid payroll 33% the of rate Tax 23.45 euros per 1000 m 1000 per 23.45 euros electricity of MWh per 4.47 euros quarter per truck per euros –232.60 3.50 annum per land of 0.1–2.5% value taxable on used). water ground or pond of 3 of natural gas gas natural of 3 of pond or ground water used (in 2012 (in used 1.59–145.46 water m 1000 ground or per pond of euros 3

Contents 89 Eesti Energia Annual Report 2013 Consolidated Financial Statements (d) Deferredincometax deferred incometaxliabilities. Group hadneitherany deferred incometaxassetsnor As at31December2013and2012, the in theforeseeablefuture. is probablethatthetemporarydifferencewillnot reverse timing ofthereversaltemporarydifference andit and associates,exceptwheretheGroupcancontrol the porary differencesarisingoninvestmentsinsubsidiaries The Grouprecognisesdeferredincometaxon alltem- utilised. available againstwhichthetemporarydifferencescanbe extent thatisprobablefuturetaxableprofitwillbe Deferred incometaxassetsarerecognisedonlytothe and taxlawseffectiveattheendofreportingperiod. asset is realised or the liability is settled using the tax rates rate thatisexpectedtobeenactedintheperiodwhen nor loss. Deferred income tax isdetermined using the tax transaction affectsneitheraccountingnortaxableprofit than abusinesscombinationandthatatthetimeof recognition ofassetsandliabilitiesinatransactionother income taxisnotaccountedforiftheyarisefrominitial they arisefromtheinitialrecognitionofgoodwill;deferred liability method. Deferred tax liabilities are not recognised if income tax assets and liabilities are recognised under the between theircarryingamountsandtaxbases.Deferred foreign subsidiarieswhentemporarydifferenceshavearisen Deferred income tax assets and liabilities are recognised in Short-term employee benefits include wages and salaries Short-term employeebenefits 2.23 EmployeeBenefits dancies occurring inthecourseofrestructuring (Note2.24). present value.Redundancy provisionsaresetupforredun after the end of the reporting period are discounted to their accept the offer. Benefits falling due more than 12 months sured basedonthenumber ofemployeesexpectedto voluntary redundancy,the terminationbenefitsaremea withdrawal. Inthecaseofanoffermadetoencourage employment ofcurrentemployeeswithoutpossibility of a termination when the entity has a plan to terminate the mination benefitswhenitisdemonstrablycommitted to in exchangeforthesebenefits.TheGrouprecognises ter or wheneveranemployeeacceptsvoluntaryredundancy minated bythe Group before the normal retirement date, Termination benefitsarepayablewhenemployment ister- Termination benefits amounts arededucted. the amountofforecastbenefit,fromwhichallpaid paid, theGroupwillsetupaliability(accruedexpense)for services inreturnforwhichbenefitsareexpectedtobe If duringthereportingperiodemployeehasprovided period duringwhichtheemployeeworked. worked, andotherbenefitspayableaftertheendof months fromtheendofperiodinwhichemployee halting oftheemploymentcontractwilloccurwithin 12 other similarpay)whenitisassumedthatthetemporary porary haltingoftheemploymentcontract(holidaypayor as wellsocialsecuritytaxes,benefitsrelatedtothetem - - - - Contents 90 Eesti Energia Annual Report 2013 Consolidated Financial Statements Other employeebenefits and adjusted to reflect current best estimates. The costs and adjustedtoreflectcurrent bestestimates.Thecosts Provisions arereviewedat theendofeachreportingperiod recognised (iftheother recognitioncriteriaaremet). of obligations as a whole. If that is the case, the provision is some outflowofresourceswillbeneededtosettle theclass may besmallforanyindividualitem,itprobable that whole. Althoughthelikelihoodofanoutflowresources determined by considering the class of obligations as a an outflowofresourceswillberequiredinsettlement is If thereareseveralsimilarobligations,theprobability that Provisions arenotsetuptocoverfutureoperating losses. mates. Ifrequired,independentexpertsmaybe involved. Provisions arerecognisedbasedonmanagement’sesti of timeisrecognisedasaninterestexpense. obligation. Theincreaseintheprovisionduetopassage of the time valueof money and the risks specific to the an interestratethatreflectscurrentmarketassessments of theexpendituresnecessarytosettleobligationusing can bemade.Provisionsaremeasuredatthepresentvalue settle theobligation,andareliableestimateofamount is probablethatanoutflowofresourceswillberequiredto legal orconstructiveobligationasaresultofpastevents,it Provisions arerecognisedwhentheGrouphasapresent 2.24 Provisions compensation forwork-relatedinjuries(Note2.24). from collectiveagreementsandotherthe Provisions have been set up to cover the benefits arising - when the item is acquired or as a consequence of use of when theitemisacquiredorasaconsequenceofuse lement, removalorrestorationobligation,incurredeither item ofPPEwhentheprovisionisrelatedtodismant expenses orareincludedwithintheacquisitioncostofan related tosettingupprovisionsarechargedoperating the endofreporting period when this is required by cover environmentaldamages thathaveoccurredbefore Environmental protection provisionsarerecognisedto (b) Environmentalprotection provisions of suchanobligation. loyees accordingtocourtordersovertheestimated period expenditure relatedtofuturepaymentsformer emp- Provisions forwork-relatedinjuriesarerecognised tocover eligible forthecompensation. of theobligationandestimatednumber people to coverthesecosts.Theprovisionisbasedon the terms benefits totheirformeremployees,aprovision issetup If theGrouphasobligationtopaypost-employment related injurycompensation (a) bursement maynotexceedtheamountofprovision. be treatedasaseparateasset.Theamountofthereim the Groupsettlesobligation.Thereimbursementshall it isvirtuallycertainthatreimbursementwillbereceivedif reimbursement shallberecognisedwhen,andonly provision isexpectedtobereimbursedbyanotherparty,the Where someoralloftheexpenditurerequiredtosettlea they weresetup. Provisions areusedonlytocovertheexpensesforwhich the itemduringaparticularperiod. Provisions for post-employment benefits and work- - - Contents 91 Eesti Energia Annual Report 2013 Consolidated Financial Statements included withinthecost of property,plantandequipment. The presentvalueofthe dismantlingcostsofassetsis has apresentconstructive obligationtoincurthesecosts. the Group’spastpractice hasdemonstratedthattheGroup of assetsifthedismantling ofassetsisrequiredbylaworif cover theestimatedcostsrelatingtofuturedismantling The provisionsforthedismantlingofassetsare set upto (e) Provisionforthedismantlingcostofassets or announcingitsmainfeaturestothoseaffected byit. out therestructuringbystartingtoimplement that plan a valid expectation amongthose affected that it will carry implementation oftheplan;andifGrouphas raised sated forterminationoftheirservices,thetiming ofthe approximate numberofemployeeswhowillbecompen- the principal locations affected, thelocation,function and expenditure, thebusinessorpartofaconcerned, Group hasannouncedarestructuringplan,identifyingthe to coverthecostsrelatedemployeeredundancyif Provisions forterminationbenefitshavebeenrecognised (d) Provisionforterminationbenefits operations isusedtosetuptheprovisions. prior experiencegainedfromtheterminationofmining and quarries,ifitisrequiredbylaw.Experts’opinion set uptocoverthecostsrelatedclosingofmines Provisions fortheterminationofminingoperationsare (c) Provisionsfortheterminationofminingoperations work areusedtosetuptheprovisions. opinions andpriorexperienceinperformingenvironmental obligation to liquidate this environmental damage. Experts’ demonstrated thattheGrouphasaconstructivepresent law orwhentheGroup’spastenvironmentalpolicieshave the Group free of charge to meet the obligations arising the Groupfreeofchargetomeetobligationsarising that areownedbytheGrouporwillbeallocatedto average priceofthegreenhousegasemissionallowances A provision for greenhouse gas emissions is set up in the (f) Provisionsforgreenhousegasemissions financial statementsas contingent liabilities. circumstances liabilities, aredisclosedinthenotesto with sufficientreliability, but whichmaybecomeincertain where theamountof obligationcannotbemeasured of resourceswillberequired tosettletheobligation,or Possible obligationswhereitisnotprobablethatan outflow 2.25 ContingentLiabilities lization oftimingoramountisuncertain. meet the obligations arising from treaties, in which rea - Provision forobligationsarisingfromtreatiesis set upto (h) Provisionforobligationsarisingfromtreaties or penaltiesarisingfromfailuretofulfillit. occurred of fulfilling the contract) and any compensation the costoffulfillingit(revenuesreceivedlessexpenses provision issetupintheamountwhichlowerof economic benefitsexpectedtobereceivedunderit.The of meetingtheobligationsundercontractexceed has concludedacontractinwhichtheunavoidablecosts A provisionforonerouscontractissetupiftheGroup (g) Provisionsforonerouscontracts by equalquantitiesandamounts(Note2.8). both theprovisionandintangibleassetsarereduced allowances to the state for the greenhouse gases emitted, When theGroup surrenders the greenhousegasemission from legislationrelatingtogreenhousegasemissions. Contents 92 Eesti Energia Annual Report 2013 Consolidated Financial Statements position as long-term deferredincome. connection feesarecarried inthestatementoffinancial tisation periodofconnection feesis32years.Deferred lives ofassetsacquired fortheconnections.Theamor- recognised as income over the estimated average useful network. Therevenuefromconnectionfeesisdeferred and infrastructure tobebuiltinorderconnectthem tothe must payaconnectionfeebasedontheactual costsof When connectingtotheelectricitynetwork, clients (b) Recognitionofconnectionfees estimation oftheactualconsumptionandsale electricity. end ofthereportingperiod,resultinginamore precise readings eithernotreportedorincorrectly bythe Additionally, estimatesaremadeofthepotentialimpact sumption, or estimated based on past consumption patterns. by remotecounterreadingsystemsbasedonactualcon customers. Meterreadingsarereportedbycustomers,read Revenue isrecognisedonthebasisofmeterreadings (a) Saleofelectricityandgridservices all theconditionsrelatedtotransactionareevident. amount ofrevenue can bemeasuredreliablyonlywhen the additionalcriteriapresentedbelowhavebeenmet.The hip havebeentransferredfromthesellertobuyer,and Group, allsignificantrisksandrewardsincidentaltoowners is probable that future economic benefits will flow tothe the amountofrevenuecanbereliablymeasuredandit intra-group transactions.Revenueisrecognisedonlywhen of value-added tax and discounts after the elimination of in theordinarycourseofbusiness.Revenueisshownnet or receivableforthesaleofgoodsandprovisionservices Revenue comprisesthefairvalueofconsiderationreceived 2.26 Revenueecognition - - Under this method, contract revenue and profit is recog vices isrecognisedusingthestageofcompletionmethod. Revenue from unfinished and finished but undelivered ser method (c) R compensate. match them with the costs which they are intended to are recognisedasincome overtheperiodsnecessaryto the Group will comply with all attached conditions. Grants is reasonableassurance that thegrantwillbereceivedand Government grants are recognised at fair value, when there 2.27 Governmentrants lished therighttoreceivepayment. Dividend incomeisrecognisedwhentheGrouphas estab (e) Dividendincome for onacashbasis. uncertain. In such cases the interest income is accounted the effectiveinterestrate,unlessreceiptofis measured reliably.Interestincomeisrecognisedusing will flowtotheGroupandamountofrevenuecanbe the economic benefits associated with the transaction Interest incomeisrecognisedwhenitprobablethat (d) Interestincome under accruedexpenses. is shown as due to customers on construction contracts, exceed costs incurred plus recognised profits, the balance Where progressbillingsattheendofreportingperiod as accrued income in the statement of financial position. were incurred.Unbilledbutrecognisedrevenueisrecorded which thecontractcostsassociatedwithservice nised inthe proportion andinthe accountingperiods in evenue recognition under the stage ofcompletion - - - Contents 93 Eesti Energia Annual Report 2013 Consolidated Financial Statements dividends areannounced. nings andapayableto shareholders atthemoment Dividends arerecognised asareductionofretainedear- 2.29 DividendDistribution statement onastraight-linebasisoverthelease term. lease terms.Rentalincomeisrecognisedinthe income equipment are applied to assets leased out under operating The accountingpoliciesforitemsofproperty, plant and (b) TheGroupasthelessor reduced byincentivesgrantedthelessor. income statementovertheleaseterminequalportions, Payments madeunderoperatingleasesarechargedtothe (a) TheGroupasthelessee Other leasesareclassifiedasoperatingleases. to ownershipthelesseeareclassifiedasfinanceleases. which transferallsignificantrisksandrewardsincidental time inreturnforapaymentorseriesofpayments.Leases lessee therighttouseanassetforagreedperiodof A lease is an agreement whereby the lessor conveys to the 2.28 Leases asset. income over the estimated useful life of the depreciable ted assetsaredepreciated andthegrantisrecognised as as deferredincomerelatedtothegovernmentgrant.Rela The amount received as a government grant is recognised recognised inthestatementoffinancialpositionatcost. Assets acquired through government grants are initially - gement Boards of Eesti Energia AS and other individuals gement BoardsofEestiEnergiaASandotherindividuals the Group,membersofSupervisoryandMana- statements, therelatedpartiesincludeassociatesof For thepurposesofpreparingconsolidatedfinancial 2.30 RelatedPartyTransactions are managed in accordance with the principles established are managed in accordance with the principles established Group’s riskmanagement system.TheGroup’sfinancialrisks development, implementation andmaintenanceofthe is engagedinriskmanagementandresponsible forthe man oftheManagementBoardandauditingcommittee The riskandinternalauditdepartmentunderthe Chair- financial risksandminimisethevolatilityof results. The purposeoffinancialriskmanagementisto mitigate tive financial instruments tohedge certain riskexposures. the Group’sfinancialperformance.TheGroupuses deriva financial marketsandseekstominimiseadverseeffects on gement programmefocusesontheunpredictabilityof credit riskandliquidityrisk.TheGroup’soverallmana cash flowandfairvalueinterestrateriskpricerisk), financial risks:marketrisk(whichincludescurrencyrisk, The Group’sactivitiesareaccompaniedbyavarietyof 3.1 FinancialRisks 3. FinancialRiskManagement or significantinfluenceofthestate. the relatedpartiesalsoincludeentitiesundercontrol Eesti EnergiaASbelong100%totheRepublicofEstonia, Group’s financial and operating decisions. As the shares of and entitieswhocancontrolorsignificantlyinfluencethe - - Contents 94 Eesti Energia Annual Report 2013 Consolidated Financial Statements (with other factors remaining constant), the Group’s profit (with otherfactorsremaining constant),theGroup’sprofit been 8%(31December 2012:10%)higherorlower Had theUSdollar’sexchange rateat31December2013 US dollars. balances offinancialassetsandliabilitiesdenominated in At theendofreportingperiod,Grouphad following transactions included thetransactionsconcludedinUSdollars. nal currencyoftheGroupcompanies.Themajoritythese have beenconcludedinacurrencyotherthanthefunctio In addition,afewotherprocurementandcontracts dollars that is not hedged with future transactions (Note13). part ofthesalestransactionsshaleoildenominatedinUS The Group’s main currency risk arises in connection with the contracts arealsoconcludedineurostoavoidcurrencyrisk. rency risk.Alllong-termborrowingsandelectricityexport denominated ineurosareconsideredtobefreeofcur exchange ratechanges. The financialassets and liabilities ruments orcashflowswillfluctuateinthefuturedueto Currency risk is the risk that the fair value of financial inst 1) Currencyrisk (a) Marketrisks the financedepartmentofParentCompany. liquidity, interestrateandcurrencyrisksaremanagedin by theManagementBoardatGrouplevel.TheGroup’s In million EUR million In Cash and cash equivalents (Note 17) (Note equivalents cash and Cash Trade and other payables receivables other and Trade 31 December 2013 29.2 0.3 0.3 2012 15.3 0.2 7.3 - - -

other payables. equivalents, trade and other receivables and trade and result oftherevaluationbalancescashand higher/lower (2012:EUR2.2millionhigher/lower)asa for thefinancialyearwouldhavebeenEUR2.5million emission allowances. price of electricity and the price level of greenhouse gas Pool dependsontheprice differencebetweenthemarket for sales of electricity through the powerexchangeNord at eachtradinghour.The volumeofderivativetransactions entered intoforthesaleofaspecific volume of electricity ricity, forwardandoptioncontractsareusedwhich are To hedgetheriskrelatedtochangesinprice ofelect- and purchase of greenhouse gas emission allowances. the pricerisksrelatedtosaleofgoodsand services allowances. TheGroupusesvariousderivatives to hedge shale oil, and to the purchase of greenhouse gas emission are thepricerisksrelatedtosaleofelectricity and The mostsignificantpricerisksofgoodsand services 2.1) Thepriceriskofcommodities value throughprofitorlossareimpactedbypricerisk. used inproduction,andfinancialassetsrecognisedatfair under freemarketconditions,thepurchaseofresources of goodsproducedandservicesprovidedbytheGroup from interestrateriskorforeignexchangerisk.Thesale sons otherthanchangesinthemarketpricesresulting financial instrumentswillfluctuateinthefutureforrea- Price riskisthethatfairvalueandcashflowsof 2) Pricerisk in Note17. The cashandequivalentsbycurrenciesisdisclosed

Contents 95 Eesti Energia Annual Report 2013 Consolidated Financial Statements market valueofthefund’s netassets. market fundsmaychange asaresultofchangeinthe or lossmeansthatthemarket valueofinterestandmoney The priceriskoffinancialassetsatfairvaluethrough profit profit orloss 2.2) The price riskoffinancial assetsatfair value through gas emissionallowances. the yearbasedonexpectedshortageofgreenhouse sing quantityispurchasedonadispersedbasisthroughout allowances approvedbytheManagementBoard, themis- to thetradingrulesconcerninggreenhousegas emission uses option and future transactions (Note 13). According amount ofgreenhousegasemissionsallowed,theGroup when CO The needtobuygreenhousegasemissionallowancesarises the contractpriceoffered. depends onthetimehorizonofunderlyingperiodand transactions canbeconcluded.Thevolumeof level issetforpriceriskhedgetransactions,afterwhich determined separatelyforeachperiod.Theminimumprice underlying assets,therisksofwhicharebeinghedged,is defined profitsaftervariableexpenses.Thevolumeofthe Group, thegoalofhedgingtransactionsistoensurepre ting period.Accordingtotheriskhedgingprinciplesof the between thefixedpriceandmarketinrepor or a transaction partner undertakes to pay the difference in thepriceofshaleoil.Withthesetransactions,Group Swap andoptiontransactionsareusedtohedgetherisk state. Tolowertheriskfromchangesinpriceof gas emissionallowancesallocatedfreeofchargebythe 2 emissionsexceedthenumberofgreenhouse - - Interest rate risk is the risk that the fair value of financial Interest rateriskisthethatfairvalueoffinancial 3) Cashflowandfairvalueinterestraterisk financial assetsatfairvaluethroughprofitorloss. As at31.December2013theGroupdidnothaveany and otherreceivablesare exposedtocreditrisk. in bankdeposits,derivatives withapositivevalueandtrade because ofthatparty’sinability tomeetitsobligations.Cash loss causedbytheother partytoafinancialinstrument Credit risk is the risk that the Group will incur a monetary (b) Creditrisk impact ontheGroup’snetprofit. value through profit or loss would not have had significant possible changeinthefairvalueoffinancialassets atfair interest raterisk for cashflowsto the Group. Any reasonably into with fixed interest ratesand they do not result in an Overnight deposits and term deposits have been entered borrowings. borrowings, howevertheymayaffectthefairvalueof ket interestratedon’thavematerialeffectontheGroup’s 99% andfloating1%).Dueto that thechangesinmar 6% had floating interest rates (31 December 2012: fixed year-end, 94%oftheGroup’sborrowingswerefixedand folio shouldbeover50%isfollowed.Asatthefinancial that theshareoffixedinterestrateborrowingsinport For managingtheGroup’sinterestraterisks,principle Sensitivity analysisisused to assess the interestrate risk. increase wheninterestratesincrease. borrowings andliesinthedangerthatfinancialexpenses rate riskarisestotheGroupfromfloatinginterest to changesinmarketinterestrates.Cashflow instruments or cash flows will fluctuate in the future due - - Contents 96 Eesti Energia Annual Report 2013 Consolidated Financial Statements following domesticandforeignfinancialinstruments: Short-term monetaryfundscanbedepositedinthe if theyarenotpaid,the clientswillbecutofffromthe to customersaboutoverdue invoiceswiththewarningthat automated reminderand warningsystemsends messages in thedepartmentsspecifically setupforthispurpose.The The unpaid invoices of clientsare handled on a daily basis instruments anddiversification. are certainrequirementsforthematuritiesof financial financial instruments nominated in euros. In addition there The availablemonetaryfundscanbedeposited onlyin by theGroup’scommitteeoffinancialrisks. tions) andmaximumpositionsofeachpartnerare approved partners offinancialinstruments(includinghedge transac Requirements for the level of credit risk of emitents and tary funds of the Group, the following principles are followed According totheprinciplesofdepositingavailablemone • • • • • • debt instruments. freely negotiablebondsandother deposits ofcreditinstitutions; lar basis; holdings orsharescanberedeemedsellonaregu money market funds and interest rate funds in which optimal returnconsideringtheprevioustwogoals. of business; ensuring liquidityattherightmomentforneeds preserving capital - - - * Totaltradeandotherreceivableslessprepayments The maximum amount exposed to credit risk was as follows The maximumamountexposedtocreditriskwasasfollows are inthejurisdictionofspecialcreditcommittees. at thecourtoracollectionagency.Specialagreements electricity network.Afterthat,acollectionpetitionisfiled is disclosedinNote33. Notes 12and14.Informationaboutthefinancial guarantee More detailedinformationoncreditriskisdisclosed in any impairedassets. recorded. Thetypesofotherreceivablesdonot contain no significantriskoflossbeyondtheprovisions already by economicfactors,managementbelievesthat thereis Although thecollectionof receivables can be impacted Trade receivables are shown net of impairment losses. as attheendofreportingperiod: In million EUR million In Trade and other receivables (Notes 11 (Notes 12)* and receivables other and Trade 11 (Notes 16) and months three than more of maturities with banks at Deposits Total amount exposed to credit risk credit to exposed amount Total 14) and 11, 3.3, (Notes value 13 positive with Derivatives 33) (Note guarantee financial of amount Nominal 11 (Note 17) and banks at 3months than lower maturities with deposits term and accounts Bank - 290.1 158.9 31 December 2013 62.6 21.0 47.6

347.5 160.3 2012 90.0 20.4 60.1 16.7 Contents 97 Eesti Energia Annual Report 2013 Consolidated Financial Statements assigned theratingBaa1. Standard &Poor’sassignedtheratingBBB+and Moody’s For thebondtransactionwhichtookplaceinMarch 2012, from oil shale and profitability in long term perspective. risk ofthecompetitivenessproduction electricity for thechange,ratingagencyhighlighted increased from Baa1 negative to Baa2 stable. Among the reasons Moody’s changed the outlook of the Group’s credit rating BBB+ stablejaBaa1stable).Onthe21thofJanuary2014 stable andBaa1negative,respectively(31December2012: Moody’s; asat31December2013,theratingswereBBB+ credit ratingsfromtheagenciesStandard&Poor’sand the interestrateonborrowings,Grouphasobtained 2012: EUR 144.9 million) (Note 21). To lower the level of drawn loans for atotalofEUR238.5million(31December (31 December2012:300millionEUR)(Note21)andhas EUR) and15-yearinternationalbondsforEUR300million for EUR300millionand(31December2012: ramme, the Group has issued 6- year international bonds In order to finance its extensive capital expenditure prog instruments suchasloans,bondsandcommercialpapers. dity riskismanagedthroughtheuseofvariousfinancial financial obligationsduetoinsufficientcashinflows.Liqui Liquidity riskisthethatGroupunabletomeetits (c) Liquidityrisk - - cash equivalents, deposits at banks with maturities of more cash equivalents,depositsatbankswithmaturitiesofmore the Grouphadsparemonetarybalances(includingcashand 495.0 million)(Note21).Asattheendoffinancialyear, facilities ofEUR250.0million(31December2012: borrowings, areshownattheircarryingamount. months aftertheendofreportingperiod,exceptfor tual undiscountedcashflows.Thepayablesduewithin12 liabilities. All amounts shown in the table are contrac derivatives withnetpayments)bythematuritydateof the Group’s current and non-current liabilities (including The followingliquidityanalysisincludesthedivisionbetween Group tomanagetheliquidityofsubsidiaries. Board onceayear.Bankaccountlimitsareusedwithinthe for a12-monthperiodandapprovedbytheSupervisory EUR 151.8million).Thecashflowforecastsareprepared profit orloss)ofEUR83.6million(31December2012: than threemonthsandfinancialassetsatfairvaluethrough As at 31 December 2013,the Group had undrawn loan - Contents 98 Eesti Energia Annual Report 2013 Consolidated Financial Statements The informationaboutthedividendsthatwillbedeclared andbecomepayableaftertheendofreportingperiodisdisclosedinNote19. Division ofliabilitiesbymaturitydateasat31December2012(inmillionEUR): Division ofliabilitiesbymaturitydateasat31December2013(inmillionEUR): * Interestexpenseshavebeenestimatedonthebasisofinterestratesprevailingasat31December2013. * Interestexpenseshavebeenestimatedonthebasisofinterest ratesprevailingasat31December2012. Tax liabilities and payables to employees (Note 22) (Note employees to payables and Tax liabilities 11 (Notes 22) and payables other and Trade Total Borrowings (Notes 3.2, 11 3.2, 21)* (Notes and Borrowings Total 11, (Notes 33) 22 and obligations guarantee financial Potential 22) (Note employees to payables and Tax liabilities 11 (Notes 22) and payables other and Trade Derivatives (Notes 3.3, 11 3.3, 13) (Notes and Derivatives Derivatives (Notes 3.3, 11 3.3, 13) (Notes and Derivatives Borrowings (Notes 3.2, 11 3.2, 21)* (Notes and Borrowings than 1year than than 1year than 203.8 123.3 207.2 124.0 50.9 25.3 Less Less 26.8 53.9 Less Less 2.2 2.1 2.5

1 and 5years 1 and 1 and 5years 1 and Between Between Between Between 173.3 152.4 197.0 192.2 18.2 0.3 2.4 3.3 1.5 - -

than 5years than than 5years than 784.5 784.5 Later Later 816.3 816.3 Later Later ------

Total undiscounted undiscounted Total Total undiscounted undiscounted Total cash flows cash cash flows cash 1,161.6 1,220.5 1,035.3 962.2 125.7 50.9 20.4 127.3 53.9 2.4 4.0 Carrying Carrying amount Carrying Carrying 1,013.1 amount 732.8 1.9 911. 125.7 827.9 50.9 127.3 53.9 2.4 0.1 4.0

Contents 99 Eesti Energia Annual Report 2013 Consolidated Financial Statements (in millionEUR): EBITDA ratioandtheequitytoassetswereasfollows December 2013and312012,thenetdebtto equity should be at least 50% of the total assets. As at 31 should not exceed EBITDA more than three times and The Groupfollowsastrategyaccordingtowhichnetdebt the RepublicofEstonia(Notes18and19). state budgetaredefinedbyorderoftheGovernment year, thedividendspayablebyEestiEnergiaASto Estonia throughtheMinistryofFinance.Eachfinancial decreases ofsharecapitalaremadebytheRepublic sions concerningdividenddistributionandincreasesor All sharesofEestiEnergiaASbelongtothestate.Deci- 3.2 ManagementofEquityRisk In million EUR million In Equity/assets Equity debt Net 3.1, (Notes 11,assets 15, 16 17 and ) financial available-for-sale and loss or profit through value fair at assets financial months, three than more of maturities with banks at deposits equivalents, cash and cash Less: 3.1, (Notes Debt 11 21) and Net debt/EBITDA Assets EBITDA 2,817.9 1,547.7 744.3 (83.6) 31 December 310.5 827.9 2013 2.40 55% 581.0 278.4 (151.8) 1,409.1 2,497.4 2.09 732.8 2012 56% December 2012 do not materially differ from the carrying December 2012donotmateriallydifferfromthecarrying of financialpositionasat31December2013and liabilities reportedatamortisedcostinthestatement The Groupestimatesthatthefairvaluesofassetsand 3.3 FairValue been definedasfollows: fair value,byvaluationmethod.Thedifferentlevelshave The tablesbelowanalysesfinancialinstrumentscarriedat is available for similar financial instruments of the Group. contractual cashflowsatthemarketinterestratewhich of financialliabilitiesisdeterminedbydiscountingthe their fair value. For disclosure purposes, the fair value impairments isestimatedtobeapproximatelyequal amount ofcurrentaccountsreceivableandpayableless with theexceptionofbonds(Note21).Thecarrying amounts reportedintheconsolidatedfinancialstatements, • • • observable marketdata(Level3). inputs for the asset or liability that are notbased on directly orindirectly(Level2); 1 thatareobservablefortheassetorliability,either inputs other than quoted prices included within level tical assetsorliabilities(Level1); quoted prices (unadjusted) in active markets for iden - Contents 100 Eesti Energia Annual Report 2013 Consolidated Financial Statements 31 December2012: the fairvaluehierarchyasat31December2013and bilities that are measured at fair value by the level in The followingtablespresenttheGroup’sassetsandlia- In million EUR million In EUR million In Total financial liabilities (Notes 3.1, (Notes 11 13) liabilities and financial Total 3.1, (Notes 11 hedges 13) and flow Cash 13 14) (Notes and hedges flow Cash Trading derivatives (Notes 11 (Notes 13) and derivatives Trading Liabilities 3.1,(Notes 11, 13, 14 15) and assets financial Total Trading derivatives (Notes 13 14) (Notes and derivatives Trading 11 (Notes 15) and loss or profit through value fair at assets Financial Assets (Notes 3.1,(Notes 11 13) and liabilities financial Total 3.1,(Notes 11 13) and hedging for used Derivatives (Notes 11(Notes 13) and derivatives Trading Liabilities 3.1,(Notes 11, 13, 14) and assets financial Total 13 14)(Notes and derivatives Trading Assets Cash flow hedges (Notes 13 14) (Notes and hedges flow Cash

Level 1 Level 42.5 42.5 - - - - 31 December 2013 31 December Level 1 Level Level 2 Level 12.5 12.5 31 December 2012 31 December 4.0 4.9 4.8 0.6 3.4 0.1 - - - - - Level 3 Level Level 2 Level 0.2 2.4 5.9 0.2 3.2 2.3 1.0 0.1 1.7 - - - - 13.5 Total Total 18.4 42.6 47.6 4.0 2.4 0.6 5.0 3.2 3.4 2.3 0.1 1.7

that havebeenclearedinNasdaqOMX. In level 1 are classified the Group’s electricity derivatives sets heldbythegroupiscurrentbidprice. th basis.Thequotedmarketpriceusedforfinancialas- regularly occurringmarkettransactionsonanarm’sleng- regulatory agency,andthosepricesrepresentactual hange, dealer,broker,industrygroup,pricingservice,or prices arereadilyandregularlyavailablefromanexc- lance sheetdate.Amarketisregardedasactiveifquoted markets isbasedonquotedmarketpricesattheba- The fairvalueoffinancialinstrumentstradedinactive ment inlevel1 Valuation techniquesandinputsusedonmeasure Platt’s EuropeanMarcetscani andNymex. cash flowhedgesarefoundusingnotationsof ICEEUA, included inlevel3.Thevalueoftradingderivatives and not basedonobservablemarketdata,aninstrument is are observable.Ifoneormoresignificantinputs are required toestablishthefairvalue of theinstrument rument isincludedinlevel2ifallthesignificant inputs as littlepossibleonentityspecificestimates. Aninst- of observablemarketdatawhereitisavailable andrely techniques. Thesevaluationtechniquesmaximise theuse ded inanactivemarketisdeterminedusingvaluation The fair value of financial instruments that are not tra- ment inlevel2 Valuation techniquesandinputsusedonmeasure • sent value. date, withtheresultingvalue discountedbacktopre determined usingforward pricesatthebalancesheet The fair value of forward, swap and future contracts is - - - Contents 101 Eesti Energia Annual Report 2013 Consolidated Financial Statements The followingfinancialassetsaresubjecttooffsetting: (a) Financialassets Liabilities 3.4 OffsettingFinancialAssetsand In million EUR million In Net amount Net sheet balance the in off set not amounts Related in the balance sheet (Notes 3.1, (Notes 11, 3.3, sheet balance 13 the in 14) ja presented assets financial of amounts Net sheet balance the in off set liabilities financial recognised of amounts Gross assets financial recognised of amounts Gross • • or lossisbasedondiscountedcashflowmethod. Valuation offinancialassetsatfairvaluethroughprofit tion ofturnbull-wakemanAsian-typeoptionpricing. The fairvalueofoptionsisfoundusinganalyticalsolu As at 31 at December As Derivative financial (22.5) 2013 instruments (0.5) 70.1 47.6 47.1 2012 (8.0) 16.6 24.7 16.7 (0.1) - allowed. ments offsettingbetweentwoormoretransactionsis mutual claimsareinthesamecurrency.Insomeagree- allows foroffsettinginconcretesingletransactionwhen Agreements between the Group and the counterparties The followingfinancialliabilitiesaresubjecttooffsetting: (b) Financialliabilities In million EUR million In in the balance sheet (Notes 3.1, (Notes 11, 3.3, sheet balance 13 the in 14) ja presented liabilities financial of amounts Net Net amount Net sheet balance the in off set not amounts Related set off in the balance sheet balance the in off set assets financial recognised of amounts Gross liabilities financial recognised of amounts Gross As at 31 at December As Derivative financial (22.5) 2013 instruments 26.5 (0.5) 4.0 3.5 2012 (8.0) 10.4 (0.1) 2.3 2.4 Contents 102 Eesti Energia Annual Report 2013 Consolidated Financial Statements million (2012:EUR11.1 million). annual depreciationcharge wouldchangebyEUR11.3 (Note 6).Ifdepreciation rateswerechangedby10%,the period wasEUR113.3million (2012:EUR110.5million) 2.0 billion),andthedepreciationchargeof reporting the Group totalled EUR 2.3 billion (31 December 2012: EUR the netbookamountofproperty,plantandequipment of been longer than the estimates. As at 31 December 2013, ence has shown that the actual useful lives have sometimes period duringwhichtheassetwillbeused.Previous experi equipment arebasedonmanagement’sestimate ofthe The estimated useful lives of items of property, plant and plant andequipment (a) Determinationoftheusefullivesitemsproperty, statements. impact onthefinancialinformationdisclosedin The estimatespresentedbelowhavethemostsignificant nised intheincomestatementofperiodchange. estimates. Changesinmanagement’sestimatesarerecog and actions,actualresultsmayultimatelydifferfromthese based onmanagement’sbestknowledgeofcurrentevents to thefinancial statements. Althoughthese estimates are balance sheetassetsandcontingentliabilitiesinthenotes amounts ofassetsandliabilities,thedisclosureoff- use ofestimatesandassumptionsthatimpactthereported The preparationofthefinancialstatementsrequires Accounting estimatesandassumptions Assumptions 4. Critical Accounting Estimates and - -

and equipment.Whencarryingoutimpairmenttests,mana mine therecoverableamountofitemsproperty,plant As needed, the Group performs impairment tests to deter and equipment (b) sions for environmental protection, termination of mining sions forenvironmental protection, terminationofmining As at31December2013, theGrouphadsetupprovi (c) Recognitionandrevaluation ofprovisions period isdisclosedinNote 6. ses incurred in the reporting period and the comparative Competition Authority.Informationaboutimpairment los sales obligationsneededtobeapprovedbythe Estonian weighted averagepricelimitforelectricitysold tomeet from NarvaElektrijaamadtotheclosedmarket andthe of heatandelectricity,thepricelimitforelectricity sold January 2013 the price limit for oil shale for the production complete opening of Estonianelectricity market from 1 a reasonablerateofreturnfortheseassets. Until the derived fromthesaleofgoodsandservicesguarantees services remainwithintheexpectedlimits,revenue expenses andinvestmentsrelatedtothesaleofnetwork rate of return to be earned on these assets. If the income, the CompetitionBoardwhichdeterminesreasonable of fixedassetsusedfornetworkservicesareimpactedby be partially orwholly reversed. The recoverable amounts be recognised, or previously recognised impairment could changes inthefuture,eitheradditionalimpairmentcould sumption and thesalespriceofelectricity.If the situation on forecasts of thegeneral economic environment, con and likelihoodofgettinggrants.Theestimatesarebased of assets,aswellestimatesforinflationandgrowthrates from theuseofassets,sales,maintenance,andrepairs gement uses various estimates for the cash flows arising valuation of the recoverable amount of property, plant Evaluation of the recoverable amount of property, plant - - - - -

Contents 103 Eesti Energia Annual Report 2013 Consolidated Financial Statements Connection andother service feesarerecognisedas (f) Recognitionofconnection andotherservicefees Further informationisdisclosed inNote33. the future based on the best knowledge of the situation. and theassumptionsconditionsofpossible events in information abouttheeconomicandsocialenvironment management considershistoricalexperience, general When estimatingcontingentassetsandliabilities, the (e) Contingentassetsandliabilities EUR 48.3million)(Note10). inventories totallingEUR39.1million(31December 2012: are considered. As at 31 December 2013, the Group had potential andthenetrealisablevalueofgoodsforresale the impairmentofinventoriesisdetermined,sales assumptions andtheconditionsoffutureevents.When experience, generalbackgroundinformationandpotential best knowledgeandittakesintoconsiderationhistorical When valuinginventories,themanagementreliesonits (d) Inventoryvaluation covered bythirdparties. future torestoreenvironmentaldamages,andexpenditure changes inlegislativenorms,technologyavailablethe differ from the provisions recognised as a result of possible ment oftheexpenditure.Theactualexpendituremayalso future expenditure,inflationrates,andthetimingofsettle the presentvalueofprovisions,includingamount assumptions andestimateshavebeenusedtodetermine settlement oftheseobligationsisuncertain.Anumber 36.8 million)(Note24).Theamountand/ortimingofthe sions totallingEUR102.1million(31December2012: operations, employeesrelatedandgreenhousegasemis- - average useful lives of the assets acquired for connections average usefullivesoftheassetsacquiredforconnections EUR 5.5 million (2012: EUR 4.7million). If the estimated reporting period,connectionandotherservicefeestotalled assets acquired for connections, which is 32 years. In the income overtheestimatedaverageusefullivesof accounting is applied, meaning that the gains and losses accounting isapplied,meaning thatthegainsandlosses of electricityandshale oilwithregardtowhichhedge transactions tohedgethe riskofthechangesinprices The Grouphasconducted asignificantnumberoffuture (h) Effectivenesstestingofhedging instruments (31 December2012:EUR3.2million)(Note12). Group’s doubtful receivables totalled EUR 2.2 million in asubsequentperiod.Asat31December2013, the as attheendofreportingperiodwillnotbe collected many doubtfulreceivablesoverduemorethan 90days vables willbecollectedinsubsequentperiods and how previous years’experienceonhowmanydoubtful recei is adjustedasattheendofeachreportingperiod using written downinfull.Theamountofdoubtfulreceivables Regularly receivableswhichare90daysoverdue invoices outstanding(includingreceivablesnotyetdue). of the reporting period, the Group had over 500 terms (delay of payment of over 90 days). As at the end of thedebtoranddebtor’sinabilitytomeetpayment may include the bankruptcy or major financial difficulties group. Thecircumstancesindicatinganimpairmentloss vidually. The remaining receivables are assessed as a The collection of material receivablesis assessed indi- (g) Evaluationofdoubtfulreceivables million) (Notes23,25and32). fees wouldincreasebyEUR0.6million(2012:0.5 were reduced by 10%, the annual income from connection 000 -

Contents 104 Eesti Energia Annual Report 2013 Consolidated Financial Statements require reportingseparateinformation): of themmeetingthequantitativethresholdsthat would that arepresentedtogetheras“Othersegments” (none segments, andanumberofminorproducts services services, whicharepresentedasseparatelyreportable The Group has distinguished three main products and products. of allocation of revenues and expenses, and assets to the nal revenuesandprofit,hasbuiltupamethodology and services,i.e.value-creatingunitsthatgenerateexter legal structure.TheGrouphasdeterminedmainproducts instead ofpreviouslyusedreportingthatwasbasedon the ManagementBoardusesproduct-basedreporting Group’s performanceandmakingmanagementdecisions, From 1January2013,forthepurposesofmonitoring 5. SegmentReporting 2012: EUR11.5million)(Note20). of thehedgereservewasEUR47.0 million(31December income statement.Asat31December2013,theamount the changesinfairvalueshouldberecognised ruments turnouttobeineffective,thetotalgain/lossfrom concerning electricityandliquidfuels.Whenhedginginst on management’sestimatesforfuturesalestransactions The evaluationoftheeffectivenesshedgingisbased ments areaccountedthroughothercomprehensiveincome. from changesinthefairvalueofeffectivehedginginstru 2. 1.

services on regulated market); and electricitytrading); generated fromrenewable andnon-renewablesources, Network Services (sale of electricity distribution network Network Services(saleof electricitydistributionnetwork Electrical Energy(production andsaleofelectricity

- - - Segment revenuesincludefromexternalcus- transactions betweensegmentsto be eliminated. and services(asopposed tolegalentities),thereareno As the segments are based on externally sellable products centrally bytheGroup’s financedepartment. are notallocatedtothe segmentsastheyaremanaged on the same proportion as the related expenses. Liabilities The Group’sassetsareallocatedtothesegments based tax arenotallocatedtothesegments. operating profit.Financeincomeandexpenses, income segments primarily based on EBITDA and it also monitors The Management Board assesses the performance of the services provided. allocated to products and services proportionallytothe of oilshaleusedforitsproduction).Groupoverheadsare of theproduct(egcostelectricityincludes the production cost of each entity involved in preparation tically integratedchain,thentherelatedexpensesinclude electricity) iscreatedbyseveralGroupentitiesinaver- products and services to which they relate. If a product (eg All operatingexpensesoftheGroupareallocatedto or services. tomers only,generatedby the sale of respective products 4. 3.

Liquid Fuels(productionandsaleofliquidfuels, other productsandservices). munication services,saleofoldmetal,ashoil-shale, equipment andservices,telecom- engineering power sale ofoil-shale,constructionelectricalnetwork, and developmentsaleofrelatedtechnology); Other segments (including production and sale of heat, Other segments(includingproductionandsaleofheat,

Contents 105 Eesti Energia Annual Report 2013 Consolidated Financial Statements Revenue consistent withthatintheconsolidatedincomestatement. The revenuefromexternalcustomersreportedtothemanagementboardofparentcompany ismeasuredinamanner on invested capital. Generally, the Estonian Competition fulfil thelegalobligationsandensuresjustifiedprofitability approving thepricesthatconsiderscostsnecessaryto Competition Authorityhasanestablishedmethodologyfor lated bytheElectricityMarketActofEstonia.TheEstonian approved by the EstonianCompetitionAuthorityasstipu For NetworkServicessegment,thesalespricesneedtobe 5. Segmentreporting,continued EUR million in Electrical Energy Network Services Liquid Fuels Other Total Revenue from external external from Revenue 2013 1 January -31 December 1 January customers 966.4 534.1 244.4 91.1 96.8 Revenue from external external from Revenue 2012 customers 822.1 228.6 415.7 100.0 77.8 - invested capital.Therateforjustifiedprofitabilityisthe non-current assetsplus5%ofexternalsalesrevenueas Authority considerstheannualaverageresidualvalueof the law. sales pricesforallothersegmentsarenotregulatedby Company’s weightedaveragecostofcapital(WACC).The EBITDA Profit before tax before Profit method Profit (loss)fromassociatesusingequity Net financialincome(-expense) Impairment Depreciation andamortisation Total Other Liquid Fuels Network Services Electrical Energy in million EUR million in

1 January -31 December 1 January EBITDA (126.6) 173.5 310.5 136.3 2013 51.7 31.9 90.6 (0.8) (1.2) (8.4) EBITDA (115.0) 278.4 104.7 (63.3) 2012 94.7 32.1 52.4 89.2 (0.2) (5.2) Contents 106 Eesti Energia Annual Report 2013 Consolidated Financial Statements a mannerconsistentwiththatoftheconsolidated financialstatements. The amountsprovidedtothemanagementboard oftheparentcompanywithrespecttototalassetsaremeasuredin The Group’s maingeographicalregions areEstonia,Latvia andLithuania. The Groupoperatesmostly inEstonia,butelectricityandsomeother goodsandservicesarealsosoldinothercountries. Liquid Fuels Other Total Network Services Electrical Energy EUR million in Other ProfitandLossDisclosures Additional information about the impairment is disclosed in Note and recognition 6 and change in provisions in Note 24. not dividedbetweensegmentsandtheinformationisprovidedtomanagementboard oftheparentcompany. Interest incomeandexpenses,corporatetaxexpenseprofit(loss)fromassociates usingequitymethodare 5. Segmentreporting,continued Assets Other Liquid Fuels Network Services Electrical Energy Total EUR million in

and amortisation and Depreciation Total assets Total 1,268.6 2,817.9 18.9) . (118 343.3 354.9 (46.4) 851.1 (56.1) (6.8) (9.6) 1 January -31 December 1 January 1 January -31 December 1 January 2013 2013 in associates Imapairment Investments (16.1) 22.4 16.1 (8.2) (0.2) (7.7) 4.2 2.1 - - and reversal (+) reversal and Recognition (-)Recognition of provisions expenditure Capital Capital (69.9) (64.8) 418.7 .4 116 217.7 43.1 41.5 (0.2) (3.8) (1.1)

and amortisation and Depreciation Total assets Total 1,023.5 2,497.4 (115.0) 326.0 833.0 314.9 (42.7) (57.5) (5.3) (9.5) 1 January -31 December 1 January 1 January -31 December 1 January 2012 2012 in associates Imapairment Investments (63.3) (56.3) 12.8 21.3 (7.0) 8.5 - - - - and reversal (+) reversal and Recognition (-)Recognition of provisions expenditure Capital Capital 298.3 109.7 513.4 32.0 73.4 (5.0) (0.2) (4.6) (0.1) (0.1)

Contents 107 Eesti Energia Annual Report 2013 Consolidated Financial Statements External RevenuebyLocationofClients Entity-wide information in million EUR EUR million in Total external revenue (Note 25) (Note revenue external Total Other countries Nordic countries Lithuania Latvia Estonia amounted to10%ormoreoftheGroup’srevenues. The Groupdidnothaveinthereportingperiodnorcomparableanyclientswhose revenuesfromtransactions 5. Segmentreporting,continued 1 January -31 December 1 January 966.4 751.1 2013 16.2 70.0 72.0 57.1 822.1 642.5 2012 75.6 50.1 44.5 9.4 Allocation ofNon-currentAssetsbyLocation* in million EUR EUR million in Total (Notes 6 and 8) 6and (Notes Total Other countries Nordic countries Lithuania Latvia Estonia * otherthanfinancialinstrumentsandinvestmentsinassociates 2,320.3 2,320.3 2,263.7 31. December 2013 46.9 0.1 9.6 - 1,994.7 2,047.1 2,047.1 10.0 42.3 2012 0.1 - Contents 108 Eesti Energia Annual Report 2013 Consolidated Financial Statements 6. Property,PlantandEquipment Movements, 1 January - 31 December 2012 -31 December 1January Movements, Property, plant and equipment as at 31 December 2011 31 at as December equipment and plant Property, Property, plant and equipment as at 31 December 2012 31 at as December equipment and plant Property, EUR million in Purchases (Note 5) Prepayments Construction in progress Construction amount book Net Impairment loss (Notes 4, 5 and 32) 4, 5and (Notes loss Impairment Net book amount book Net 32) 4, 5and (Notes charge Depreciation 2011 4) 31 at (Note as December equipment and plant property, Total Accumulated depreciation Cost Total movements, 1 January - 31 December 2012 -31 December 1January movements, Total Disposals Prepayments in progress Construction Cost Accumulated depreciation as at 31 December 2012 4) (Notes 31 at as December equipment and plant property, Total 42.2 42.2 42.7 42.7 42.2 42.2 42.2 42.2 (0.8) 42.7 42.7 42.7 42.7 Land 0.5 0.5 1.3 1.3 ------Buildings 150.6 150.6 (95.9) (87.8) 157.1 157.1 (2.0) 62.8 62.8 64.1 64.1 (0.8) 62.1 62.1 (5.0) 61.2 61.2 (5.1) 8.9 8.9 0.9 0.9 1.3 1.3 - - Facilities (321.5) (311.6) 478.5 478.5 756.8 756.8 530.7 530.7 445.3 445.3 493.8 493.8 (26.0) 815.3 815.3 52.2 52.2 36.9 36.9 33.3 33.3 79.7 79.7 (1.5) - - - Machinery and Machinery equipment 1,073.2 1,073.2 1,289.2 1,351.9 1,351.9 1,455.6 1,455.6 (726.7) (627.9) 278.7 278.7 728.9 (56.8) 355.7 355.7 661.3 661.3 581.4 581.4 414.8 414.8 (79.1) (0.2) 41.6 41.6 56,2 Other (0.3) (4.3) (4.5) 0.6 0.6 0.6 0.6 0.4 0.4 5.5 5.5 4.9 4.9 1.0 1.0 0.7 0.7 1.0 1.0 ------(1,148.6) (1,031.6) 1,988.4 1,658.6 1,658.6 2,476.2 2,243.7 2,243.7 1,327.6 1,327.6 1,212.1 1,212.1 (1 5) . (110 329.8 329.8 390.3 390.3 505.4 505.4 (63.3) 619.2 619.2 41.6 41.6 (1.8) Total 56,2 Contents 109 Eesti Energia Annual Report 2013 Consolidated Financial Statements 6. Property,plantandequipment,continued of 11% for Narva Power Plant. In addition, the value of Painkula of 11%forNarva Power Plant. Inaddition, the value of Painkula the discountrate of10%forIruPower Plant anddiscountrate assets. Theexpectedfuture cashflowswerediscountedusing rable amountwasdetermined basedonthevalueinuseof 58.3 millionofNarvaPower Plantwasrecognised.Therecove an impairmentlossofEUR2.8 millionofIruPowerPlantandEUR were tested for impairment. According to the results of the test In 2012theassetsofIruPowerPlantandNarva Plant project intheamountofEUR7.7millionwaswritten down. assets. Inadditiontheconstructioninprogressofoil refinery is caused mainly by the lower operational reliability of production were discounted using the discount rate of 9%. The impairment on thevalueinuseofassets.Theexpectedfuture cash flows was recognised. The recoverable amount was determined based ment, accordingtowhichanimpairment loss ofEUR8.2million In 2013 the assets of Aulepa Wind Plant were tested for impair Property, plant and equipment as at 31 December 2013 31 at as December equipment and plant Property, Movements, 1 January - 31 December 2013 -31 December 1January Movements, in million EUR EUR million in Cost Accumulated depreciation Total movements, 1 January - 31 December 2013 -31 December 1January movements, Total differences Exchange Disposals 32) 4, 5and (Notes loss Impairment Prepayments in progress Construction amount book Net Depreciation charge (Notes 4, 5 and 32) 4, 5and (Notes charge Depreciation as at 31 December 2013 4) (Note 31 at as December equipment and plant property, Total Purchases (Note 5) (0.6) 42.1 42.1 (0.5) Land 42.1 42.1 42.1 42.1 (0.1) ------Buildings (93.5) 153.7 153.7 60.2 60.2 71.2 71.2 (0.2) (4.8) 21.9 21.9 (7.8) 11. 0 0 11. 9.1 9.1 - - curve ofthe market atthemomentof calculation.Untilthe greenhouse gas emissionallowanceswere foundusingforward Assessing thevalueof assets,pricesforelectricityand have increasedconsiderably. several oilshalemining and usingenvironmentaltaxrates supported fromthebeginningofyear2013.In addition electricity generationintheBalticPowerPlantis no longer from themarketoratauction.Alsouseofbiomass forthe to the Group and majority of allowances must be purchased carbon dioxide(CO Commission, according to whichfrom the year 2013 free reasons. The most important was the decision of the European Impairment ofNarvaPowerPlantwascausedmainly bythree to thefairvalueofassets. co-generation plant project was written down of EUR 2.2 million Facilities (340.1) 556.6 556.6 859.6 859.6 (23.6) 519.5 519.5 50.8 50.8 25.9 25.9 (1.3) 37.1 37.1 - - - 2 ) allowances will be no longer allocated ) allowanceswillbenolongerallocated Machinery and Machinery equipment 1,587.2 1,587.2 1,643.7 1,643.7 (789.7) 235.3 235.3 334.8 334.8 854.0 854.0 (84.5) 691.5 691.5 (14.6) (0.4) 41.7 41.7 - Other (0.4) (4.5) 5.5 5.5 0.4 0.4 1.0 1.0 1.0 1.0 ------(1,227.8) 2,258.1 2,258.1 2,704.6 2,704.6 1,476.8 1,476.8 (1 3) . (113 269.7 269.7 739.6 739.6 407.9 407.9 (16.1) Total (8.7) 41.7 41.7 (0.1) Contents 110 Eesti Energia Annual Report 2013 Consolidated Financial Statements Lease Terms Buildings andFacilitiesLeasedoutunderOperating for capitalisation(Note30). was usedtodeterminetheamountofborrowingcosts eligible qualifying assets.Thecapitalisationrateof4.5%(2012: 4.7%) amounting toEUR31.5million(2012:24.3million) on During theyear,Grouphascapitalisedborrowing costs greatly depend upon the receipt of renewable energy subsidy. new AuverePowerPlantwhichvalueinusethefuturewill (31 December2012:EUR278.0million)constructioncostsof as at31December2013includesEUR431.9million The amount of construction in progress and prepayments recognised impairmentlosspartiallyorwhollywasidentified. impaired inthepriorperiods.Noneedtoreversepreviously In 2013 newimpairment tests were performed for assetsthatwere the on decreased production demand capacities of those assets. The impairment ofthe other assets in2012wascaused by the increased byexpectedinflation. the approvedbudgetandforfollowingyearscostswere costs ofthepowerplantforyear2013werebasedon increased bytheevaluationofmanagement.Operating the law and from the year 2016 environmental charges were year 2015environmentalchargeswerebasedonratesfixedby 6. Property,plantandequipment,continued EUR million in amount book Net Depreciation charge year financial the of Accumulated depreciation at the beginning Cost 31 December 2013 (2.8) (0.1) 2.5 2.5 5.4 5.4 2012 (0.2) (2.7) 2.5 2.5 5.4 5.4

from leaseassetsisdisclosedinNote7. calculated onthebasisofpartassetleasedout.Income partly for earning rental income. Cost and depreciation have been Leased assetsarepartlyusedintheGroup’sownoperationsand are mostlycancellable withshort-term notice. Operating lease agreements,where theGroupislessee, lease agreement. The oilterminal has been leased outunder non-cancellable lable OperatingLeaseContractsbyDueDates Future MinimumLeaseReceivablesunderNon-cancel - 7. OperatingLease income rental Total Rental income EUR million in Rental expense 25) (Note income maintenance and rental Total Rental and maintenance income maintenance and Rental EUR million in Total rental expense (Note 29) (Note expense rental Total >5years 1-5years <1year Buildings rent Facilities contingent which of Buildings Transport vehicles Transport Other machinery and equipment machinery Other

1 January -31 December 1 January 1 January -31 December 1 January 2013 14.4 14.4 10.7 10.7 2013 3.0 0.7 0.7 0.6 0.6 2.3 2.3 4.4 4.4 0.7 0.7 1.5 1.5 1.1 1.1 1.1 1.1 - 2012 15.4 15.4 2012 11. 6 6 11. 0.8 0.8 3.0 3.5 3.5 0.8 0.8 0.6 0.6 1.3 1.3 1.2 1.2 1.3 1.3 1.6 1.6 0.1 0.1 Contents 111 Eesti Energia Annual Report 2013 Consolidated Financial Statements Intangible Non-currentAssets 8. IntangibleAssets Intangible assets as at 31 December 2011 31 at as December assets Intangible EUR million in Movements, 1 January - 31 December 2013 -31 December 1January Movements, Intangible assets as at 31 December 2012 31 at as December assets Intangible Intangible assets as at 31 December 2012 31 at as December assets Intangible Movements, 1 January - 31 December 2012 -31 December 1January Movements, Accumulated amortisation Cost Net book amount book Net Intangible assets not yet available for use for available yet not assets Intangible Total intangible assets as at 31 December 2011 31 at as December assets intangible Total Purchases (Note 5) Purchases (Note 5) Amortisation charge (Notes 5 and 32) 5and (Notes charge Amortisation Amortisation charge (Notes 5 and 32) 5and (Notes charge Amortisation Total intangible assets as at 31 December 2012 31 at as December assets intangible Total Exchange differencees Exchange differences Exchange Total movements, 1 January - 31 December 2012 -31 December 1January movements, Total Total movements, 1 January - 31 December 2013 -31 December 1January movements, Total Intangible assets not yet available for use for available yet not assets Intangible Accumulated amortisation Cost Net book amount book Net Total intangible assets as at 31 December 2013 31 at as December assets intangible Total Intangible assets not yet available for use for available yet not assets Intangible Net book amount book Net Accumulated amortisation Cost Goodwill 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 ------Computer software (14.8) 18.8 18.8 18.9 18.9 23.6 23.6 19.3 19.3 16.3 16.3 14.3 14.3 14.3 14.3 21.8 21.8 (5.6) (5.5) 29.1 29.1 (9.3) (4.5) 6.0 6.0 5.0 5.0 0.4 0.4 2.5 2.5 4.6 4.6 4.6 4.6 0.1 0.1 - - use of land Right of (0.5) (0.5) (0.5) 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.5 2.5 2.5 2.5 2.5 2.5 ------assets for mineral for assets and evaluation evaluation and Exploration resources (0.3) (0.4) 2.8 2.8 8.3 8.3 3.9 3.9 4.8 4.8 8.3 8.3 8.3 8.3 4.4 4.4 3.9 3.9 3.9 3.9 3.1 3.1 1.1 1.1 1.1 1.1 1.1 1.1 ------Contractual rights 30.4 30.4 (0.3) 30.7 30.7 30.4 30.4 30.4 30.4 30.7 30.7 30.7 30.7 29.1 29.1 (0.6) (1.3) 29.1 29.1 29.1 29.1 (1.3) 0.3 0.3 ------(15.3) 62.2 62.2 58.7 58.7 53.6 53.6 63.9 63.9 10.8 10.8 72.5 72.5 59.6 59.6 (6.0) Total 56.1 56.1 (9.8) (0.9) 54.1 54.1 (5.6) (4.5) 57.2 57.2 (1.7) 3.5 3.5 2.6 2.6 8.0 8.0 5.0 5.0 2.5 2.5 4.6 4.6 Contents 112 Eesti Energia Annual Report 2013 Consolidated Financial Statements Goodwill rate Discount Key AssumptionsUsedinDeterminingValue Use level. Noimpairmentwasidentifiedduringthese tests. the basisofareaoperationsCompanyand itsrisk used as the discount rate, which is being determined on balance. The weighted average cost of capital (WACC) is on historical data and the forecasts of the Estonian energy the electricity business. The cash flow forecasts are based periods isbasedonaninvestmenthorizonregularlyusedin prepared uptothenext20years.Theselectionof basis oftheirvalueinuseandusingthecashflowforecast The recoverableamountofassetsisdeterminedonthe units cash-generating by goodwill of Allocation 8. Intangibleassets,continued

EUR million in December 2012 31 at amount Carrying December 2013 31 at amount Carrying

Valka co-generation plant Mining Paide co-generation plant

Mining 2.5 2.5 2.5 2.5

co-generation Paide plant 0.6 0.6 0.6 10.0% 10.0% 1 % 0 11. 31 December 2013

co-generation 10.0% 10.0% 1 % 0 11. Valka 2012 plant 0.4 0.4 0.4 The assets were reviewed for impairment. No impairment The assetswerereviewedforimpairment.Noimpairment as explorationandevaluationassetsofmineralresources. mine located in the state of Utah, USA are recognised The costsrelatedtotheexplorationofanoilshale Exploration andevaluationassetsofmineralresources emission allowancesweresurrendedtostate. tonnes (2012:12304855tonnes)ofgreenhouse gas 3 454 141 tonnes) were sold. In 2013 10 979 989 allowances wereacquiredand11000tonnes(2012: tonnes (2012: 2 109141 tonnes) of greenhouse gas nised asintangiblecurrentassets.In201327392207 The value of greenhouse gas allowances acquired is recog Intangible currentassets-greenhousegasallowances identified, that would indicate impairment of the assets. need fortheevaluationofassets.Noindicatorswere ted useful life is20years.Managementhasevaluated the of Utaharerecognisedascontractualrights,whichestima The costsrelatedtotheminingrightsacquiredinstate Contractual rights was identifiedduringthesetests. period the of end the at allowances gas Greenhouse period the of beginning the at allowances gas Greenhouse EUR million in Other movements Other 27) (Note Revaluation Surrendered to other legal person 24) (Note emissions gas greenhouse the for state to Surrendered Sold Acquired 1 January -31 December 1 January (50.0) 139.2 139.2 100.4 100.4 2013 (0.3) 11.6 11.6 (0.1) - -

(25.8) (10.0) 28.0 28.0 2012 (0.2) 17.8 17.8 11.6 11.6 1.8 1.8 -

- -

Contents 113 Eesti Energia Annual Report 2013 Consolidated Financial Statements Change inInvestmentsAssociates 9 InvestmentsinAssociates period the of beginning the at value Book in million EUR EUR million in Book value at the end of the period (Note 5) (Note period the of end the at value Book (Note 35)(Note Consideration for the acquired shareholding associate the by declared Dividends Negative goodwill (Note 35) (Note goodwill Negative comprehensive income comprehensive 32) and 5 (Notes method equity using associates from (loss) Profit of which recognised in other other in statement recognised income which of the in recognised which of

1 January -31 December 1 January 22.4 22.4 2013 (0.8) 21.3 21.3 (0.4) (1.7) 0.2 0.2 3.0 0.4 0.4 23.3 23.3 2012 21.3 21.3 (0.2) (0.3) (0.5) (1.5) - - Contents 114 Eesti Energia Annual Report 2013 Consolidated Financial Statements joint other shareholderswhoholdtheremainderof 35%shares.Basedonvotingquoromrequirementsfordifferentdecisions the righttomakeanyrelevantdecisionsregarding EnefitJordanB.V.Groupwithouttheconsentofoneor,incases,both control Enefit JordanB.V.Groupisrecognisedasassociate asaccordingtotheShareholders’Agreement,Groupdoesnothave is * ThefinancialyearofOricaEestiOÜisfrom1Octoberto30September not established. Information onAssociates 9. Investmentsinassociates,continued * ThefinancialyearofOricaEestiOÜisfrom1Octoberto30September Orica Eesti OÜ* Eesti Orica B.V. Group Jordan Enefit Nordic Energy Link Group Link Energy Nordic Company Nordic Energy Link Group Link Energy Nordic EUR million in Company EUR million in Orica Eesti OÜ* Eesti Orica Enefit Jordan B.V. Group Jordan Enefit Netherlands, Jordan Netherlands, Jordan Estonia, Finland Estonia, Estonia, Finland Estonia, Location Location Estonia Estonia Assets Assets 31 December 2013 31 December 31 December 2012 31 December 109.9 33.6 67.7 17.0 17.1 15.3 81.2 13.4 Liabilities Liabilities 29.5 42.1 82.2 1 2 11. 52.9 21.3 1.4 8.0 1 January - 31 December 2013 -31 December 1 January Operating 1 January - 31 December 2012 -31 December 1 January Operating income income 43.6 16.4 27.2 39.4 25.0 14.4 - - Net profit Net Net profit Net (7.0) (4.0) 2.3 4.0 5.3 2.0 4.3 1.7 31 December 2013 31 December 31 December 2012 31 December Ownership Ownership (%) (%) 50.0 65.0 35.0 65.0 35.0 39.9 Contents 115 Eesti Energia Annual Report 2013 Consolidated Financial Statements EUR 0.6million(2012:1.6million). ries ofrawmaterialsandtotalling down damagedandslow-movinginvento In thereportingperiod,Groupwrote Inventories 10. warehouses at Raw materials and materials EUR million in Prepayments to suppliers 32) and 4 (Notes inventories Total Finished goods Work-in-progress Shale oil Stored oil shale Total finished goods finished Total finishedOther goods Total work-in-progress Other work-in-progressOther quarries in works Stripping

31 December 18.0 18.0 2013 19.9 19.9 14.8 14.8 39.1 39.1 0.3 0.3 0.9 0.9 0.2 0.2 2.0 2.0 1.2 1.2 0.7 0.7 48.3 48.3 2012 27.5 27.5 24.7 24.7 17.7 17.7 2.9 2.9 0.2 0.2 0.2 0.2 2.7 2.7 1.7 1.7 1.1 1.1 - 11. DivisionofFinancialInstrumentsbyCategory EUR million in position financial of statement the in items asset financial Total position financial of statement the in items asset Financial 2012 31 at December As position financial of statement the in items asset Financial 2013 31 at December As position financial of statement the in items asset financial Total (Notes 3.1,(Notes 14 17) 3.2, and equivalents cash and Cash 3.1, 16)(Notes and 3.2 3months than more of maturities with banks at deposits Term 3.1,(Notes 13 3.3, 14) and instruments financial Derivative 3.1 12) (Notes and prepayments excluding receivables other and Trade (Notes 3.1, 16)(Notes and 3.2 3months than more of maturities with banks at deposits Term 3.1,(Notes 13 3.3, 14) and instruments financial Derivative 3.1 12)(Notes and excluding prepayments receivables other and Trade (Notes 3.1,(Notes 14 17) 3.2, and equivalents cash and Cash 3.1, 15) (Notes and 3.3 3.2, loss or profit through value fair at assets Financial receivables Loans and Loans 242.5 160.3 310.4 158.9 90.0 60.1 62.6 21.0 - - - profit or loss or profit assets at fair fair at assets Financial Financial through value value 2.3 4.9 3.2 1.7 2.3 ------Derivatives accounting accounting is applied is for which for hedge 45.3 13.5 13.5 45.3 ------328.8 290.1 160.3 158.9 Total 90.0 60.1 16.7 62.6 21.0 47.6 1.7 Contents 116 Eesti Energia Annual Report 2013 Consolidated Financial Statements 11. Divisionoffinancialinstrumentsbycategory,continued EUR million in position financial of statement the in items liability Financial 2012 31 at December As position financial of statement the in items liability Financial 2013 31 at December As position financial of statement the in items liability financial Total position financial of statement the in items liability financial Total Trade and other payables (Notes 3.1 22) (Notes and payables other and Trade 3.1, 21) (Notes and 3.2 Borrowings Derivative financial instruments (Notes 3.1, 13) (Notes and 3.3 instruments financial Derivative Borrowings (Notes 3.1, 21) (Notes and 3.2 Borrowings Trade and other payables (Notes 3.1 22) (Notes and payables other and Trade Derivative financial instruments (Notes 3.1, 13) (Notes and 3.3 instruments financial Derivative Liabilities at fair value value fair at Liabilities through profit or loss loss or profit through 0.1 0.1 1.0 1.0 - - - - Derivatives for which which for Derivatives hedge accounting accounting hedge is applied applied is 2.3 2.3 3.0 3.0 - - - - liabilities liabilities financial financial Other 858.5 732.8 955.2 125.7 827.9 127.3 - - 860.9 732.8 Total Total 959.2 125.7 827.9 127.3 2.4 4.0 Contents 117 Eesti Energia Annual Report 2013 Consolidated Financial Statements Enefit Jordan B.V. with the interest rate 15% (2012: 15%). Enefit JordanB.V.withthe interestrate15%(2012:15%). associates includethetermless loangrantedtotheassociate December 2012:EUR34.3 million).Thereceivablesfrom gas emissionallowances totallingEUR38.8million(31 Prepayments include prepayments forgreenhouse 12. TradeandOtherReceivables receivables other and trade Short-term EUR million in Receivables from associates (Note 14) (Note associates from Receivables Prepayments Long-term receivables receivables other and trade short-term Total 14) (Note receivables Other 14) (Note used being from restricted Cash 14) (Note associates from Receivables Prepayments receivables Trade income Accrued (Notes 3.1 11) and (Notes receivables other and trade Total receivables Total long-term lon-termOther receivables (Note 14) income accrued Total Total trade receivables (Note 32) (Note receivables trade Total Accounts receivable of completion method (Note 14) (Note method completion of stage the under customers from due Amounts Other accrued income (Note 14) (Note income accrued Other Allowance for (Note receivables doubtful 4) Accrued interest (Note 14)

204.5 185.1 1.9 114. 31 December 2013 117.1 19.4 45.3 (2.2) 18.1 8.9 2.8 0.3 4.3 3.9 4.6 9.3 1,0 - 200.6 174.6 1 .1 112 1 3 . 115 2012 26.0 28.3 (3.2) 12.0 13.0 11.6 18.7 0.2 5.5 5.9 2.4 1.0 1.5 1.5 carrying amounts. Collection of receivables and prepay- vables andprepaymentsdonotsignificantlydifferfromtheir a guaranteeforthetransactions.Thefairvaluesofrecei financial resourcesthatareheldonSEBFuturesaccountas Under cashrestrictedfrombeingusedarerecognised vables classified as doubtful are collected in a later period vables classifiedasdoubtful arecollectedinalaterperiod adjusted usingpriorexperience ofhowmanytherecei amount of allowance for receivables 90 days past due is 90 dayspastdueareusually writtendowninfull.Thetotal Under theaccountingpolicies oftheGroup,receivables Analysis ofAccountsReceivable is disclosedinNote3.1. euros. TheamountofreceivablesdenominatedinUSdollars Most of the Group’s receivables and prepayments are in ments forservicesandgoodsisnotcoveredbysecurities. Accounts receivable not yet due (Note 14) (Note due yet not receivable Accounts in million EUR EUR million in as doubtful classified not but due receivable Accounts down written receivable Accounts as doubtful classified not but due receivable accounts Total Total accounts receivable receivable accounts Total due past 3 months than more are that receivable accounts Total 3-6 months past due past 3-6 months 1-30 days past due 1-30 past days more than 6 months past due past 6months than more due 61-90 past days due 31-60 past days

117.1 105.9 31 December 2013 0.8 0.8 5.3 6.1 5.1 2.7 1.6 1.3 115. 2012 10.9 97.7 6.7 0.3 5.5 9.9 1.2 0.7 - -

Contents 118 Eesti Energia Annual Report 2013 Consolidated Financial Statements The other receivables do not contain any impaired assets. The other receivables do notcontain any impaired assets. Changes inAllowanceforDoubtfulReceivables nomic recessionaretakenintoaccountduringevaluation. individual andextraordinaryimpactsliketheglobaleco past duearenotcollectedinalaterperiod.Alsoother and howmanyofthereceivablesnotmorethan90days 12. Tradeandotherreceivables,continued period the of beginning the at Allowance for doubtful receivables EUR million in of the period (Note 4) (Note period the of end the at receivables doubtful for Allowance the accounting period during collections and doubtful as Classified Classified as irrecoverable 1 January -31 December 1 January (2.2) (3.2) 2013 (0.8) 1.8 1.8 (3.2) (3.5) 2012 (0.4) 0.7 0.7 - construction. ment manufacturingandnetworkequpimentdesign Long-term construction projects are mostly power equip Revenue undertheStageofCompletionMethod U EUR million in in the financial year financial the in projects construction from revenue Total Total gains calculated on construction projects construction on calculated gains Total year financial the in projects construction on expenses Total nfinished projects at the end of the period the of end the at projects nfinished Revenue of unfinished projects of completion method stage the under customers to due Amounts Gains/losses calculated on unfinished projects 14) (Note method completion of stage the under customers from due Amounts billing submitted Progress Total expenses on unfinished projects unfinished on expenses Total (38.0) (12.3) (40.1) 31 December (0.4) 42.2 42.2 2013 11. 9 9 11. (0.1) 4.3 4.3 2.1 2.1 (20.4) (39.2) (37.0) 20.7 20.7 2012 42.4 42.4 (0.1) 0.3 0.3 3.2 3.2 5.5 5.5 - Contents 119 Eesti Energia Annual Report 2013 Consolidated Financial Statements either as revenue or reduction of revenue at the time the either asrevenueorreduction ofrevenueatthetime through othercomprehensive incomeandisrecognised sactions concludedfor hedging purposesisrecognised effective portionofthe change inthefairvalueoftran- high probabilityonthepowerexchangeNord Pool. The being hedgedistheestimatedelectricitytransactions of flow hedging instruments, where the underlying instrument the riskinpriceofelectricity,aredesignated ascash in euros.Thetransactions,thegoalofwhichis to hedge ricity ateachtradinghourandtheirpriceisdenominated into forthesaleorpurchaseofafixedvolume ofelect price ofelectricity. All forward contracts have been entered the priceofelectricityorearnincomeonchanges inthe and sellingelectricityistomanagetheriskofchanges in The goaloftheforwardandoptioncontractsforbuying electricity Forward andoptioncontractsforbuyingselling 13. DerivativeFinancialInstruments hedges flow cash as oil fuel selling for contracts option and Swap Total derivative financial instruments (Notes 3.1, 11 (Notes 3.3, 14) and instruments financial derivative Total EUR million in hedges flow cash as electricity selling and buying for contracts Forward derivatives trading as oil fuel selling for contracts option and Swap derivatives allowances trading as emissions gas greenhouse selling and buying for contracts option and Future derivatives trading as electricity selling and buying for contracts Option portion current Total Forward contracts for buying and selling electricity as cash flow hedges flow cash as electricity selling and buying for contracts Forward Swap and option contracts for selling fuel oil as cash flow hedges flow cash as oil fuel selling for contracts option and Swap portion: including non-current Total non-current portion - is thequotesonNord Pool. The basisfordetermining thefairvalueofinstruments profit orloss. ding derivatives carried at fair value with changes through the year2014).Optiontransactionsareclassified astra been hedged for the year 2013 and 5 904 240 MWh for the year2015(31December2012:2242214 MWh had been hedged for the year 2014 and 3 144 840 MWh for 2014). Asat31December20135788468 MWh had will realise in2014-2015 (31 December 2012: in 2013- goal of which is to hedge the risk in the price of electricity The forwardcontractsofbuyingandsellingelectricity the unlikely tooccurinagivenperiod. expenses whenitisevidentthatsalestransactionsare sales transactionsofelectricityoccurorotheroperating 31 December 2013 31 December Assets Assets 42.5 47.6 41.4 6.2 6.2 2.3 2.7 0.1 - - Liabilities 2.5 4.0 1.5 3.0 0.6 0.4 1.5 - - - 31 December 2012 31 December Assets Assets 16.7 12.5 9.2 3.2 7.5 0.4 1.0 7.1 - - Liabilities 0.3 2.4 0.3 2.3 2.1 0.1 - - - - - Contents 120 Eesti Energia Annual Report 2013 Consolidated Financial Statements the quotes by Platt’s European Marcetscan and Nymex. The basisfordeterminingthefairvalueoftransactionsis be hedgedarehighlyprobableshaleoilsalestransactions. hedging instruments, where the underlying instruments to in futureperiodsandtheyaredesignatedascashflow concluded for the sale of a speficied volume of shale oil price changesforshaleoil.Thetransactionshavebeen selling fueloilclassifiedashedgesistohedgetheriskof The goaloftheswapandoptioncontractsforbuying Swap andoptioncontractsforsellingfueloil ICE EUA.Thepricesaredenominatedineuros. determining thefairvalueoftransactionsisquotes as gains or losses in the income statement. The basis for The fair value changes of these transactions are recognised emission allowancesareclassifiedastradingderivatives. option contractsforbuyingandsellinggreenhousegas The futurecontracts(exceptforownusecontracts)and house gasemissionsallowances Future andoptioncontractsforbuyingsellinggreen 13. Derivativefinancialinstruments,continued -

that havebeenconcludedinordertotransferthevalue acquisition ofallcomponents.Liquidityswaptransactions, at fairvaluewithchangesthroughprofitorlossuntilthe components ofderivativeinstruments,arerecognised Hedging instruments,whicharecombinedfromvarious and 468519tonnesfortheyear2014). (31 December2012:312709tonnesfortheyear2013 for theyear2014and540425tonnes2015 at 31December2013453827tonneshadbeenhedged in 2014-2015.(31December2012:2013-2014).As to hedge the risk of price changes of shale oil will realise The swap-andoptioncontractsforsellingfueloilwhichaim denominated ineurosandUSdollars. values, areclassifiedastradingderivatives.Theprices where thetradingdoesn’trequiredailycoverageofmarket changes ofpreviouslyconcludedtransactionstopartners, Contents 121 Eesti Energia Annual Report 2013 Consolidated Financial Statements is consideredtobevery low. lied on clearing houses and based on that the credit risk the requirementsforminimum equityamountsareapp- house members toissue warrants for their liabilities.Also important ofwhichistherequirementfor clearing rious riskmanagementmeasuresareapplied, the most to officialfinancialregulation,inrelationwhom va- Nasdaq OMXconstitutesaclearinghousethat is subject contract. lier creditbehaviourofclientsandotherpartiestothe assigned by rating agencies or, in their absence, the ear not due yet and not written down is the credit ratings The basisforestimatingthecreditqualityoffinancialassets 14. CreditQualityofFinancialAssets receivables Trade EUR million in Total accrued interest (Note 12) (Note interest accrued Total Total trade receivables (Note 12) (Note receivables trade Total Accrued interest Accrued 6months) than shorter relationship (client clients new from Receivables rating of A1 of rating credit Moody’s with banks from Receivables date due the exceeded not have 6 months last the in who 6months), than longer tionship rela (client clients existing from Receivables date due the exceeded have 6 months last the in who 6months), than longer tionship rela (client clients existing from Receivables Aa3 of rating credit Moody’s with banks from Receivables

- - 105.9 31 December 2013 55.0 45.0 5.9 - - - 2012 35.5 97.7 54.1 0.2 8.1 0.1 0.1 -

Group did not have any major credit risk concentrations. As at31December 2013and31December 2012,the indicate impairmentloss. risk, asthereisnoevidence ofcircumstancesthatwould from anindependent party do not involvematerial credit receivables andaccruedincomewithoutacredit rating According totheestimateofmanagement the other income accrued and receivables Other EUR million in banks in deposits short-term and accounts Bank Derivatives with positive value (Notes 3.1, 11 (Notes 3.3, 13) value and positive with Derivatives 3.1, 11 (Notes 16) 3.2, and 3 months than more of maturities with banks at deposits Total 3months than more of maturities with banks at Deposits instruments financial Derivative 12) (Note receivables other Total 3.1, 11(Notes 17) 3.2, and banks in deposits short-term and accounts bank Total A credit rating of A1 of rating credit Moody’s with value positive with Derivatives Derivatives through Nasdaq OMX clearing house clearing OMX Nasdaq through Derivatives credit rating of A2 of rating credit Moody’s with value positive with Derivatives credit rating of Aa3 of rating credit Moody’s with value positive with Derivatives At banks with Moody's credit rating of A2 of rating credit Moody's with At banks A1 of rating credit Moody's with At banks Aa3 of rating credit Moody's with At banks an independent party from rating credit without Receivables A1 of rating credit Moody's with receivables Other At banks with Moody's credit rating of Aa2 of rating credit Moody's with At banks A3 of rating credit Moody's with At banks A2 of rating credit Moody's with At banks At banks with Moody's credit rating of A1 of rating credit Moody's with At banks t banks with M with t banks oody's credit rating of A of rating credit oody's

a3 31 December 44.0 44.0 48.0 48.0 62.6 62.6 2013 16.0 16.0 42.5 42.5 34.7 34.7 21.0 21.0 13.2 13.2 47.6 47.6 4.8 4.8 0.3 0.3 5.0 5.0 0.3 0.3 9.3 9.3 1.1 1.1 - - - 48.0 48.0 90.0 90.0 36.0 36.0 39.0 39.0 23.0 29.3 29.3 60.1 60.1 2012 16.7 16.7 15.0 15.0 12.5 12.5 18.7 18.7 31.9 31.9 3.2 3.2 0.3 0.3 0.6 0.6 4.5 0.7 0.7 0.1 0.1

Contents 122 Eesti Energia Annual Report 2013 Consolidated Financial Statements statement. units was recognised as financial income in the income net assetsofthefund.Thechangeinfairvalue offund asset value of fund units based on the market value of the minated ineuros.Thefairvalueoffundunitswas thenet The unitsofDanskeInvestEuroInterestFundwere deno Through ProfitorLoss Changes in Financial Assets Reported at Fair Value 15. FinancialAssetsatFairValue U period the of beginning the at value Fair EUR million in EUR million in (Notes 3.2, 3.3 and 11) and 3.3 3.2, (Notes assets financial unquoted Total (Notes 3.2, 3.3 and 11) and 3.3 3.2, (Notes period the of end the at value Fair assets: financial nquoted U Disposed Acquired nits of Danske I Danske of nits Through ProfitorLoss nvest E nvest uro I uro nterest F nterest und 1 January -31 December 1 January 31 December 2013 2013 (6.4) 1.7 4.7 - - - (22.5) 2012 2012 19.3 4.9 1.7 1.7 1.7 - 16. DepositsatBankswithMaturities 17. CashandEquivalents of thedepositswereterminatedprematurely. (2012: 91-193days),whichwasduetothefactthatsome ting periodtheduedatesofdepositswere31to193days between and0.3-1.52%(2012:0.5-1.52%).Intherepor deposits with maturities of more than 3 months were In thefinancialyear,effectiveinterestratesofterm accounts Bank 3months than more of maturities with banks at Deposits Short-termdeposits EUR million in EUR million in 3.1, 11(Notes 14) 3.2, and equivalents cash and cash Total than 3 months (Notes 3.1, 11 (Notes 14) 3.2, and 3months than more of maturities with banks at deposits Total of Morethan3Months

31 December 31 December 2013 2013 62.6 21.0 53.7 21.0 8.9 2012 2012 90.0 90.0 60.1 42.6 17.5 - Contents 123 Eesti Energia Annual Report 2013 Consolidated Financial Statements 17. Cashandcashequivalents,continued was increased byEUR150million on 10July2012by of 3May2012theshare capitalofEestiEnergiaAS Under OrderNo.196 of theGovernmentEstonia and themaximumshare capitalisEUR1000,0million. Energia AS,theminimumsharecapitalisEUR250,0 million reholders. Accordingtothearticlesofassociation ofEesti by theMinisterofFinanceatGeneralMeeting ofSha- reholders istheEstonianMinistryofFinance,represented nistrator ofthesharesand the exerciserof the rightsof sha- The soleshareholderistheRepublicofEstonia. admi- registred shares).Thenominalvalueofeachshare is1euro. 750 registered shares (31 December 2012: 621 645 750 As at 31 December 2013, Eesti Energia AS had 621 645 18. ShareCapital,StatutoryReserve 0.21and 0.8%(2012:0.2-1.8%). deposits withmaturitiesofupto3monthswerebetween In thefinancialyear,effectiveinterestratesofterm Cash andEquivalentsbyCurrencies Lithuanian lit Lithuanian US dollar lat Latvian Euro EUR million in 3.1, 11(Notes 14) 3.2, and equivalents cash and cash Total Capital andRetainedEarnings 31 December 62.6 62.6 60.5 60.5 2013 0.3 0.3 0.1 0.1 1.7 1.7 52.0 52.0 60.1 60.1 2012 0.8 0.8 7.3 7.3 -

the accompanyingcorporateincometax. distributable shareholders’equity,potentialdividends and The followingtablepresentsthebasisforcalculating the ders. ThecorrespondingincometaxtotalsEUR30.2 million. 2013 AnnualReportbytheGeneralMeetingofSharehol - pay EUR113.6millionasdividendsaftertheapproval ofthe Government oftheRepublic,EestiEnergiaASisrequiredto According tothedividenddistributionplandisclosedby 2012: EUR364.7million)asnetdividends. It ispossibletopayoutEUR440.9million(31December 117.2 million(31December2012:EUR97.0million). dends, thecorporateincometaxwouldamounttoEUR dends. on dividendsis21/79oftheamountpayableasnetdivi- the distributionofdividendstoshareholders.Incometax 461.7 million).Corporateincometaxispayableupon equity wasEUR558,1million(31December2012: As at31December2013,theGroup’sdistributable serve capital(31December2012:EUR3.9). to transferanadditionalEUR8.0millionstatutoryre- 31 December2013,EestiEnergiaAShadanobligation million (31December2012:EUR47.2million).Asat the Group’sstatutoryreservecapitaltotalledEUR51.0 a monetarycontribution.Asat31December2013, Statutory reserve capital reserve Statutory 39) (Note earnings Retained in million EUR million in Distributable shareholder's equity Distributable Net available dividends for distribution Corporate income on tax if dividends distributed If allretainedearningsweredistributedasdivi- 440.9 566.1 558.1 31 December 2013 1.2 117. (8.0)

465.6 364.7 461.7 2012 (3.9) 97.0

Contents 124 Eesti Energia Annual Report 2013 Consolidated Financial Statements In 2013,EestiEnergiapaiddividendsofEUR55,2mil- 20. HedgeReserve approved asat31December2013. this amountasaliabilitythedividendhadnotbeen 113.6 million.Thesefinancialstatementsdonotreflect financial yearended31December2013,totallingEUR ting topaydividendsofEUR0.18pershareforthe The ManagementBoardproposedtotheAnnualMee- (Note 39). (2012: EUR65,2million,dividendspershare0,14) lion to the Republic of Estonia or EUR 0,09 per share 19. DividendsperShare EUR million in Hedge reserve at the beginning of the period the of beginning the at reserve Hedge period the of end the at reserve Hedge Recognised as a reduction of revenue of areduction as Recognised hedges flow cash of value fair in Change 1 January -31 December 1 January (12.2) 2013 47.0 1 5 11. 47.7 2012 -0.4 1 5 11. 9.8 2.1 London Stock Exchange. The fair value of the bondsis The bondsaredenominatedineurosandlisted onthe Bonds Borrowings atAmortisedCost rate of4,5%. with thematurity datein2020and haveafixedinterest bonds were EUR 3.0 million. Other long-term bonds are of 4,25%.Transactioncosts relatedtotheissuingof rity datein2018.The bonds haveafixedinterestrate with anominalvalueEUR 300millionandwiththematu In 2012EestiEnergiaASissuednewlong-term bonds hierarchy. based on the input that is within level 1 of thefair value 21. Borrowings EUR million in EUR million in Short-term borrowings Short-term Long-term borrowings Long-term Nominal value of bonds (Note 3.1) (Note bonds of value Nominal sales price (Note 3.3) (Note price sales quoted of basis the on bonds of value Market Current portion ofCurrent portion long-term bank loans Bank loans issued Bonds Total borrowings short-term Total borrowings (Notes 3.1, 3.2 and 11) 3.1, and (Notes 3.2 borrowings Total Total long-term borrowings Total long-term

600.0 600.0 658.3 658.3 826.5 589.6 827.9 236.9 31 December 31 December 2013 2013 1.4 1.4 600.0 600.0 653.2 653.2 732.8 588.3 731.4 143.1 2012 2012 1.4 1.4 - Contents 125 Eesti Energia Annual Report 2013 Consolidated Financial Statements 21. Borrowings,continued the year2019. interest rate,therepayment ofprincipalwilltakeplacein the loanEUR45million was takenintousewithafloating November 2015-2023.Theremaining partof will takeplaceinannualequalinstalmentsduringthe period fixed interestrate(2.528%),therepaymentsof principal 2011). OfwhichEUR50millionwastakeninto usewith Bank (EIB)ofEUR95million(agreementswere madein long-term investmentloansfromEuropeanInvestment In thefourthquarterof2013Grouptook intouse conditions. to comply with. The Group has complied with all attached AS containcertainfinancialratiosthattheGroupneeds 3.07%). TheloanagreementsconcludedbyEestiEnergia interest rateonloanswas2.60%(31December2012: As at 31 December 2013, the weighted average nominal 3.2% (31December2012:0.8-3.2%). 2013 theinterestratesofloanswerebetween0.9and All loansaredenominatedineuros.Asat31December Long-term Bank Loans at Nominal Value byDue Date > 5years 1 -5years < 1year EUR million in Total 238.5 31 December 172.3 2013 64.8 1.4 144.9 1 3 . 113 2012 30.2 1.5 racted in September 2013. Mentioned liquidity loans can racted inSeptember2013.Mentionedliquidityloanscan loan agreementswithNordea,SEBandPohjolabankcont 495.0 million),ofwhichEUR150millionwereliquidity facilities ofEUR250.0million(31December2012: As at31December2013theGrouphadundrawnloan Borrowings byPeriodthatInterestRatesare Fixed for that arewithinlevel3ofthefairvaluehierarchy. discounted usingdiscountratesbetween2.342%-2.609% is notsignficant.Thefairvaluesarebasedoncashflows from theircarryingamounts,astheimpactofdiscounting loans withfixedinterestratedonotalsosignificallydiffer the riskmarginshavenotchanged.Thefairvaluesof does notsignificantlydifferfromtheircarryingamountsas with afloatinginterestrateattheendofreportingperiod Management estimates that the fair value of the loans October 2014. loan is taken into use. The loan can be taken into use until 2013. Theinterestratewillbecomeobviouswhenthe which hadnotbeentakenintouseasat 31 December investment loanagreementwithEIBofEUR100million, interest rate.InOctober2013theGroupcontractednew be taken intouseuntil August 2018 and havea floating Period until earlier of next interest rate repricing date and maturity date. maturity and date repricing rate interest next of earlier until Period > 5years < 1year EUR million in 1 -5years Total (Notes 3.1, 3.2 and 11) 3.1, and (Notes 3.2 Total 356.5 356.5 827.9 419.0 419.0 31 December 2013 52.4 52.4 732.8 732.8 699.5 699.5 2012 24.7 24.7 8.6 8.6 - Contents 126 Eesti Energia Annual Report 2013 Consolidated Financial Statements 22. TradeandOtherPayables rowings Weighted AverageEffectiveInterestRatesofBor 21. Borrowings,continued Other payablesOther Payables to associates Accrued expenses Trade payables Long-term bank loans Bonds EUR million in EUR million in Prepayments 3.1) (Note Tax liabilities 3.1) (Note employees to Payables Total trade and other payables other and trade Total and other payables (Note 3.1 11) and (Note payables other and trade within payables financial Total payables other and trade within payables Financial of which long-term and trade other payables of which short-term trade and other payables other and trade short-term which of 109.2 127.3 127.3 178.4 178.4 181.7 181.7 31 December 2013 31 December 2.6% 4.7% 32.5 32.5 2013 21.4 21.4 6.6 6.6 3.3 3.3 0.5 0.5 3.9 3.9 7.6 7.6 125.7 125.7 177.3 177.3 174.9 174.9 110 . 6 6 . 110 2012 4.7% 29.0 29.0 2012 3.1% 21.9 21.9 2.8 2.8 4.9 4.9 2.4 2.4 0.7 0.7 7.4 7.4 - Government Grants Connection andOtherServiceFees Center . Fund (ISPA),EnterpriseEstonia, EnvironmentalInvestment Majority ofthegrantshave beenreceivedfromtheCohesion 23. DeferredIncome EUR million in EUR million in period the of beginning the at grant from income Deferred period the of beginning the at fees service other and connection Deferred period the of end the at grant from income Deferred at the end of the period period the of end the at fees service other and connection Deferred which long-term deferred income of which short-term deferred income 26) (Note income as Recognised Transferred grants Grants received which long-term deferred income of which short-term deferred income as income (Notes 4 and 32) 4and (Notes income as recognised fees service other and Connection Connection and other service fees and other received service Connection 1 January -31 December 1 January -31 December 1 January 136.0 136.0 147.2 147.2 2013 2013 (0.4) (0.4) (5.5) 16.7 16.7 3.0 3.0 3.8 3.8 0.6 0.6 3.5 3.5 2.4 2.4 7.3 7.3 5.1 5.1 136.0 136.0 125.7 125.7 2012 2012 (0.5) (0.5) 15.0 15.0 (4.7) 3.0 3.0 0.9 0.9 0.2 0.2 0.6 0.6 2.4 2.4 0.7 0.7 3.1 3.1 Contents 127 Eesti Energia Annual Report 2013 Consolidated Financial Statements resulted fromthechangeindiscountrate. Recognition andchangeintheprovisionsduring financialyear2013intheamountofEUR1,9million(2012:0.8million) 24. Provisions Provision for obligations arising from treaties Provision for onerous contracts Employee related provisions (Note 28) (Note provisions related Employee 29) 28and (Notes Provision for termination of mining operations Provision for dismantling cost of assets (Note 6) (Note assets of cost dismantling for Provision 29) (Note provisions protection Environmental (Notes 8 and 27) 8and (Notes emissions gas greenhouse for Provision (Notes 8 and 27) 8and (Notes emissions gas greenhouse for Provision 6) (Note assets of cost dismantling for Provision 28) (Note provisions related Employee 29) 28and (Notes Provision for termination of mining operations 29) (Note provisions protection Environmental in million EUR EUR million in in million EUR EUR million in Total provisions (Notes 4 and 32) 4and (Notes provisions Total Total provisions (Notes 4 and 32) 4and (Notes provisions Total Opening balance Opening Opening balance Opening 31 December 31 December 36.8 36.8 45.5 45.5 20.6 20.6 2012 18.5 18.5 2011 10.7 10.7 5.8 5.8 2.8 2.8 4.3 4.3 9.3 9.3 5.7 5.7 2.7 2.7 1.9 1.9 - - of provisions of provisions and reversal and and reversal and Recognition Recognition Recognition Recognition (Note 5) (Note (Note 5) (Note 69.9 69.9 56.7 56.7 (6.0) (0.3) 5.0 5.0 6.5 6.5 2.0 2.0 3.5 3.5 2.5 2.5 1.2 1.2 1.0 1.0 7.8 7.8 - - (Note 30) (Note (Note 30) (Note Interest Interest charge charge 0.8 0.8 0.2 0.2 0.2 0.2 0.9 0.9 0.4 0.4 1.6 1.6 0.1 0.1 0.1 0.1 1.1 1.1 - - - - - (15.3) (10.0) (5.7) (0.8) (2.8) (3.2) (1.8) (1.0) (1.3) (0.1) Use Use - - - - Closing balance 31 December 2013 31 December balance Closing Closing balance 31 December 2012 31 December balance Closing Short-term Short-term provision provision 73.3 73.3 12.9 12.9 62.4 62.4 0.8 0.8 5.8 5.8 3.5 3.5 4.6 4.6 5.9 5.9 1.2 1.2 0.7 0.7 1.3 1.3 - - - Long-term Long-term Long-term Long-term provision provision 28.8 28.8 23.9 23.9 16.0 16.0 18.6 18.6 2.8 2.8 3.0 0.6 0.6 4.4 4.4 0.7 0.7 3.7 3.7 1.0 1.0 1.9 1.9 - - Contents 128 Eesti Energia Annual Report 2013 Consolidated Financial Statements of which is determined using data from Statistics Estonia of whichisdetermined using datafromStatisticsEstonia the remaininglifeexpectancy oftheemployees,period during theperiodsspecified inthecontractsorduring Long-term employeerelated provisionswillbesettled Employee relatedprovisionshavebeensetup for: will besettledin2014-2035. Provisions relatedtotheterminationofminingoperations and atNarvaElektrijaamadin2014-2058. settled attheEesti Energia Kaevandused in2014 -2035, Long-term environmental protection provisions will be termination ofminingoperationshavebeensetupfor: Environmental protection provisions and provisions for the 24. Provisions,continued • • • • • • • • • • • payments ofscholarships. payment ofterminationbenefits; compensation ofwork-relatedinjuries; and otheracts; payment ofbenefitslaiddownincollectiveagreements regnated poles. for dismantling and gathering of equipment and imp eliminating asbestosinpowerplants; maintenance ofclosedashfields; closing landfillsandneutralisingexcesswater; mining activities; restoring watersuppliescontaminatedasaresultof cleaning contaminatedlandsurfaces; restoring landdamagedbymining; - these minesandquarrieshavebeenannounced. will be setup when the detailedplans for the closure of payments ofterminationbenefitsinminesandquarries on lifeexpectanciesbyagegroups.Theprovisionsfor presumably besettledin 2017. after theimplementation ofthesystem.Theprovisionwill meter readingsysteminstallation worksthatwillbepaid set upforapartofcontractual paymentforautomatic The provisionforobligations arisingfrom treaties hasbeen charge hasreduced,theprovisionincreased(Note 33). greenhouse gas emission allowances allocated free of allocated totheGroupfreeofcharge.Asamount of tonnes ofthegreenhousegasemissionallowances were of charge is 443 690 tonnes. For year 2012 10 301 645 of greenhouse gas emission allowances to be received free 2014. Forheatproductionin2013theexpected amount gas emissionallowancesfreeofchargeduring theyear is expectingtoreceive4998874tonnesofgreenhouse According to the investments amount in 2013the Group for the purpose ofmodernisation of electricity production. allocated totheGroupfreeofchargeforheatproductionor allowances thatareownedbytheGrouporwillbe up intheavaragepriceofgreenhousegasemission The provisionforgreenhousegasemissionshasbeenset costs isexpectedtobesettledin2034-2035. plant and equipment.The provision for the dismantling costs oftheassetswasincludedincostproperty, Narva powerplants.Thepresentvalueofthedismantling power blocksNo.8and11industrialwastedumpofthe set uptocoverthefuturedismantlingcostsofrenovated The provision for the dismantling costs of assets has been

Contents 129 Eesti Energia Annual Report 2013 Consolidated Financial Statements provisions indifferenttimehorizons. provisions. Itallowsmoreaccurateevaluationofthe is usedinsteadofaveragediscountratefordiscounting (2012: 1.75-5.44%). From the year 2012discountcurve The provision are discounted at the rate of 1.55-4.98% paying penalties. is notpossibletoterminatethe contracts prematurely by ractual clausesandtherequirementsinlegalacts,it account when setting up the provision.Duetocont the contracts (until the year 2018) have been taken into der. Allthelossesthatcouldoccureuntilexpiringof of transmissioncapacitiesontheEstonian-Latvianbor- above-mentioned situation hasoccured due tothe deficit to behigherthanthefixed-pricesofsalescontracts.The prices of electricity in the power exchange are expected in the future, which is driven by the fact that the purchase the losses that will probably occur in Latvia and Lithuania The provisionforonerouscontractshasbeensetup 24. Provisions,continued - 25. Revenue EUR million in 5) (Note revenue Total services of Sale activity By goods of Sale Total sale of services of sale Total services Other Sale of telecommunication services 7) (Note income maintenance and Rental 32) 4, 23 and (Notes fees Connection Repair services and construction Sales of services network Other goods Other Power equipment Oil shale Heat Shale oil Electricity Total sale of goods of sale Total 1 January -31 December 1 January 966.4 966.4 244.2 244.2 265.4 265.4 701.0 701.0 527.0 527.0 38.2 38.2 2013 13.2 13.2 24.7 24.7 91.1 91.1 8.8 8.8 6.8 6.8 5.8 5.8 5.5 5.5 1.1 1.1 - 406.5 406.5 566.4 566.4 233.2 233.2 822.1 822.1 255.7 255.7 35.5 35.5 10.8 10.8 2012 28.7 10.5 10.5 77.8 77.8 4.2 4.2 1.8 1.8 4.7 4.7 1.3 1.3 7.1 7.1 Contents 130 Eesti Energia Annual Report 2013 Consolidated Financial Statements 27. RawMaterialsandConsumables Used 26. OtherOperatingIncome was stilloutstanding. 5 million.Asat31December2013theinsuranceclaim Energy Unit8inEestipowerplanttheamountofEUR loss ofincomeandrepairduetothebreakdown are recognised2012 an insurance compensation for the In fines, penalties and compensations of the financial year Fines, penalties and compensations Resource on tax mineral resources Other rawOther materials and consumables used 8) (Note allowances gas greenhouse the of Revaluation The greenhouse gas allowances sold Technological fuel Maintenance and repairs 24) (Note expense emissions gases Greenhouse Electricity Transmission services 23) (Note grants Government 32) (Note equipment and plant property, of disposal on Gain EUR million in EUR million in Other operatingOther income 36) 9, 33 and (Notes associates as tion reclassifica and subsidiaries of disposal on Gain Sale of greenhouse gas allowances Total raw materials and consumables used consumables and materials raw Total Total other operating income operating other Total - 1 January -31 December 1 January -31 December 1 January 419.6 419.6 28.3 28.3 99.3 99.3 85.0 85.0 24.2 24.2 89.4 89.4 2013 2013 36.7 36.7 56.7 56.7 8.8 8.8 4.6 4.6 0.4 0.4 1.9 1.9 1.9 1.9 - - - - 380.4 380.4 46.4 46.4 60.9 60.9 46.9 46.9 33.2 33.2 99.5 99.5 30.4 2012 2012 13.6 13.6 85.1 85.1 19.7 19.7 (1.8) 19.7 8.0 8.0 6.5 6.5 0.5 0.5 1.5 1.5 3.1 3.1

28. PayrollExpenses Supervisory Board.The term ofappointmentfor5years. The ManagementBoard membersareappointedbythe EUR million in Number of employees Payroll expenses of the period the of Number of employees at the beginning Average number of employees Number of employees at the end of the period boards supervisory and Of which remuneration to management expenses payroll calculated Total Payroll taxes and payments Other to benefits employees euros) (in pay monthly Average pay vacation and bonuses salaries, Wages, provisions (Note 24) (Note provisions Recognition/reversal of employee related Total payroll expenses 24) (Note protection tion of mining operations and environmental Covered from the provisions for the termina assets self-constructed of cost the in Capitalised Fringe benefits Fringe Salaries, bonuses, remuneration additional boards supervisory and management to paid Total

- 1 January -31 December 1 January 1 January -31 December 1 January 148.2 148.2 168.9 (18.9) 121.0 121.0 6,960 7,560 1,379 7,314 2013 2013 42.9 42.9 (0.3) (1.8) 2.3 2.3 5.3 2.4 2.4 0.1 0.1 168.5 168.5 151.6 151.6 118 .4 .4 118 (15.7) 7,560 7,573 7,631 1,303 2012 2012 42.7 42.7 (1.2) 2.0 2.0 5.4 5.4 1.8 1.8 1.9 1.9 0.1 0.1 Contents 131 Eesti Energia Annual Report 2013 Consolidated Financial Statements 30. NetFinancialIncome(-expense) 29. OtherOperatingExpenses Financial expenses 32) (Note income financial Total operatingOther expenses Research and development costs termination provisions (Note 24) mining and environmental of Recognition 7) (Note expense Rental expenses office Miscellaneous Environmental pollution charges EUR million in EUR million in Total other expenses Net financial income (-expense) Total financial expenses financialOther expenses Foreign losses exchange income Financial Interest expense financialOther income Total interest expenses 24) (Note provisions on expenses Interest 32) (Note borrowings on expenses interest Total Total income interest Interest income (Note 6) (Note assets qualifying on capitalised Amounts loans and bonds on expenses Interest

1 January -31 December 1 January -31 December 1 January (33.6) 85.5 85.5 (3.2) 2013 2013 24.5 (4.4) (0.2) (1.2) 12.0 12.0 (2.1) 31.5 31.5 37.6 37.6 (1.0) (1.1) 2.9 2.9 3.2 3.2 0.3 0.3 2.3 2.3 2.9 2.9 4.4 4.4 4.7 4.7 (30.6) 68.0 68.0 (6.3) (5.2) (8.4) 2012 2012 33.4 33.4 24.3 24.3 (0.2) (7.9) (0.3) (3.5) 17.8 17.8 14.1 14.1 (1.6) 3.2 3.2 3.2 3.2 3.2 3.2 3.5 3.5 2.7 2.7 - 2008, the income tax rate is 21/79 of the net dividend paid. 2008, theincometaxrateis21/79ofnetdividendpaid. retained earningsaretaxedinEstonia.From1January Under theIncomeTaxAct,dividendspayableoutof liabilities. Group didnothaveany deferredincometaxassetsand As at31December2013and2012, the Average EffectiveIncomeTaxRate the Groupdistributesitsdividends. by theGroupfromcorporateincometaxpayableonce state bythedistributerofdividendscanbededucted of the shares, thenthe amount of income tax paid to the registered inEstoniawheretheGrouphasatleast10% If the Group receives dividends from other companies 31. CorporateIncomeTax EUR million in Estonia Total income tax expense tax income Total Latvia and Finland in subsidiaries the from arising expense tax Income Income from tax liquidation proceeds rate tax income effective Average dividends on tax income Effective Impact of paid dividends by associates incomeTheoretical at tax applicable rates Income applicable tax for dividends Net dividends 1 January -31 December 1 January 20.4% 21/79 55.2 55.2 14.0 14.0 2013 (0.2) 14.3 14.3 (0.4) 14.7 14.7 (0.1) 20.5% 21/79 65.2 65.2 2012 16.9 16.9 (0.4) 17.8 17.8 17.3 17.3 0.2 0.2 0.7 0.7 Contents 132 Eesti Energia Annual Report 2013 Consolidated Financial Statements 32. CashGeneratedfromOperations operating activities to relating liabilities current in change Net operating activities to relating assets current in change Net tax before profit net Adjusted EUR million in operations from generated Cash tax income before Profit Adjustments Change in trade payables trade in Change 24) (Note provisions in Change operating activities to relating assets current in change net Total to operating activities relating assets current other in change Net 10) (Note inventories in Change 12) (Note activities operating to related receivables in Change 30) (Note income financial other and Interest 30) (Note borrowings on expense Interest Currency exchange gain/loss on loans granted loans on gain/loss exchange Currency Unpaid/unsettled gain/loss onUnpaid/unsettled derivatives 9) (Note method equity using associates from (loss) Profit assets non-current purchase to received grant government of Amortisation equipment (Note 26) (Note equipment and plant property, of disposal on Gain 34) and 26 (Note subsidiaries of disposal on Gain operating activities to relating liabilities in change net Total operating activities other to relating liabilities in change Net other service fees (Notes 4, 23 and 25) 4, 23 and (Notes fees service other Deferred income from and connection 8) 5and (Notes assets intangible of Amortisation 6) 5and (Notes equipment and plant Depreciation and impairment of property,

1 January -31 December 1 January 304.9 304.9 285.9 173.5 173.5 (87.3) 129.4 129.4 (93.7) 68.3 65.3 65.3 2013 (2.8) (0.3) (3.2) (4.6) (5.5) 6.2 0.8 0.8 9.2 9.2 2.6 2.6 5.6 5.6 0.9 0.9 0.4 0.4 2.1 2.1 - 262.8 262.8 (32.5) 227.4 227.4 173.8 173.8 (10.4) (10.4) (13.6) (11.7) (2.9) 94.7 94.7 2012 (3.2) (8.7) (4.7) (3.1) 0.2 0.2 6.3 6.3 4.6 4.6 4.5 1.2 1.2 7.9 7.9 - -

Oil shaleResources (a) Off-balancesheetassets ** * when recognisingtheresources. restrictions havebeenadjustedandtakenintoaccount known technical,environmentalandsocial-economical perspective. Depending on the development phase the standard bothbythelevelofexplorationandeconomical rized expertsandisprovedappropriateaccordingtothe classification oftheresourceisperformedbyautho standards ofevaluationresourcesandreserves.The based onthedisclosurerequirementsofinternational of internationaldevelopmentprojectsarerecognised balance of natural resources. The resources of oil shale Republic representtheresourcesofoilshaleinofficial the tablebelow.TheresourcesofoilshaleEstonian session oftheGroupanditsassociatesispresentedin The overviewoftheresourcesoilshaleinpos 33. Measured* Measured* Jordan in millions of tonnes of millions in Inferred** Indicated** Measured ** U Inferred** Estonia not applied. have been factors modifying possible which to analyses, before pre-technical the resources for applied is definition This interest. commercial for sibility pos high has that shale, oil place in total of amount as defined is Resource factors. modifying defined already and economical technical, grade, cut-off desired by fied modi been has it after Resource, place in of a part represents Resource SA**

Liabilities andCommitments Off-Balance SheetAssets,Contingent

3,680 3,680 2,604 2,604 2,540 2,540 31 December 2013 368 368 930 930 522 522 3,680 3,680 2,604 2,604 2,540 2,540 2012 368 368 930 930 - 542 542 - - - Contents 133 Eesti Energia Annual Report 2013 Consolidated Financial Statements group company. Tax authorities have the right to review tax auditsattheCompany orsinglecaseauditsatany Tax authoritieshaveneither startednorperformedany Contingent liabilitiesarisingfrompotentialtax audit (b) Contingentliabilities 2012). ling 49.0milliontonnes(including10.3 for 2008 -2012greenhousegasemissionallowances total to thecompaniesofEestiEnergiaGroupfor the years nment ofEstoniano.18322December2011 allocated The allocation plan established by the decree ofthe Gover gas emissions(Note24). into accountwhencalculatingtheprovisionforgreenhouse be receivedis443690tonnes.Thesequantitiesaretaken of greenhouse gas emission allowances free of charge to 2014. Forheatproductionin2013theexpectedamount gas emissionallowancesfreeofchargeduringtheyear is expectingtoreceive4998874tonnesofgreenhouse According to the investments amount in 2013the Group emission allowances free of charge for heat production. 2013 to2020 up to 2.4 million tonnes of greenhouse gas Group according to the article 10a to receive in the period the period2013to2019.Inadditionitispossibiblefor of greenhousegasemissionallowancesfreechargein nisation of electricity production up to 18 million tonnes System the Group may receive for the purpose of moder On implementationofarticle10cEUEmissionsTrading 33. Off-balancesheetassets,contingentliabilitiesandcommitments,continued Emission rights

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additional taxes,interestandfines.TheGroup’smana ted tax year and if they find any errors they may impose the Company’s tax records within 5 years after the repor liability isnotprobable. Based on management’s estimates, the realization of the statement offinancialposition asat31December2013. is notclear,theliability hasnotbeenrecognisedinthe new Enefit280shaleoilplant.Astheessenceof the claim for additionalworkperformedduringtheconstruction of Energa ÕlitööstusASintheamountofEUR28 million Outotec GMBHhasraised a claimagainstsubisidiaryEesti Other disputes terminated. Link repaidalltheloanstobanks,guarantee is was effective.Asduringtheyear2013ASNordic Energy Energy Linkduetobreachofcontractualterms(Note3.1), banks should require full payment of loans from AS Nordic its associateASNordicEnergyLinkandthebanksif tions arisingfromtheloancontractsenteredintobetween which theGrouphadgrantedupto39.9%forobliga As at31December2012theguarantee,accordingto The covenantshavebeenadheredto. covenants ontheGroup’sconsolidatedfinancialindicators. The loanagreementsconcludedbytheGroupsetcertain Collaterals, guaranteesandcourtactions this respect. which maygiverisetoapotentialmaterialliabilityin gement considersthattherearenotanycircumstances - - - Contents 134 Eesti Energia Annual Report 2013 Consolidated Financial Statements Requirement tocomplywiththeenvironmentalnorms (c) Commitments 108.0 million (31 December 2012: EUR 136.6 million). December 2014,2015and2016intheamount ofEUR racts for buying greenhouse gas emissions allowances in As at 31 December 2013 the group had concluded cont Contracts forbuyinggreenhousegasemissionsallowances 404.9 totalling EUR168.4million(31December2012: bilities relatingtotheacquisitionofnon-currentassets million). As at31December2013,theGrouphadcontractuallia Capital commitments arising from construction contracts this obligation requiresadditionalinvestmentto be made. will becomemorerigorousfromyear2016.Completing need tocomplywiththeenvironmentalrequirementswhich the pollutantsfromoilshaleboilersintoatmosphericair According to the legislation of European Union and Estonia, 33. Off-balancesheetassets,contingentliabilitiesandcommitments,continued

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34. DisposalofSubsidiaries Net AssetsoftheSubsidiaryDisposed 100% shareholdinginTelevõrguASwascompleted. On 17February2012thetransactionofsale (a) TelevõrguAS EUR million in transaction in flows in Cash transaction in inflows cash Total in bank accounts bank in subsidiary of equivalents cash and Cash sale from Proceeds Gain on sale (Note 32) (Note sale on Gain Sales price disposed subsidiary th of assets net Total Trade and other payables assets Intangible equipment and plant Property, Inventories receivables other and Trade andCash equivalents cash 17 February 2012 17 February 22.1 22.4 22.4 10.2 (0.3) (3.9) 13.6 8.8 2.0 0.3 0.1 0.1 Contents 135 Eesti Energia Annual Report 2013 Consolidated Financial Statements share capital. share (Note18).In2013therewerenochanges inthe million newshareswiththenominalvalueofone europer increased in2012byEUR150millionreleasing 150 3 May2012, the sharecapitalofEestiEnergiaASwas Under OrderNo.196oftheGovernmentEstonia of per shareequaltobasicearningsallthe periods. As therearenopotentialordinaryshares,diluted earnings weighted averagenumberofordinarysharesoutstanding. attributable totheequityholdersofcompanyby Basic earningspersharearecalculatedbydividingprofit 36. Information aboutthetransaction holds 50%ofthesharecapitalASNordicEnergyLink. Atter theacquisitionofanadditionalinterestGroupnow interest (10.1%)inanassociateASNordicEnergyLink. On 30December2013theGroupacquiredanadditional 35. AcquisitionofanAdditional EUR million in 9) (Note goodwill Negative interest equity of value Fair Consideration for the acquired shareholding (Note 9) EUR million in Diluted earnings per share (E share per earnings Diluted (EUR) share per earnings Basic (million) shares of number average Weighted company (million EUR) the of holders equity the to attributable Profit Earnings perShare Interest inanAssociate U R) 1 January - 31 December 1 January 621.6 159.5 2013 0.26 0.26 571.2 2012 (0.2) 0.14 77.3 0.14 3.2 3.0 Estonia. In preparing the Group’s financial statements, the The soleshareholderofEestiEnergiaASistheRepublic 37. RelatedPartyTransactions and payables to associates in Note 22. No impairment Receivables fromassociates aredisclosedinNote12 and SupervisoryBoards isdisclosedinNote28. The remunerationpaidto themembersofManagement has controlorsignificantinfluence. nificant transactionswiththeentitiesoverwhich thestate In 2013theGroupdidn’tconcludeanyindividually-sig - ence have been taken place under normal business activity entities overwhichthestatehascontrolorsignificant influ The salesofelectricity,networkservicesandheat tothe under thecontrolorsignificantinfluenceofstate. significant influence.Relatedpartiesalsoincludeentities other companiesoverwhichthesepersonshavecontrolor gement andsupervisoryboardsoftheparentcompany, related partiesincludeassociates,membersofthemana influence significant have Board Supervisory and Management of members the which over entities with Transactions EUR million in associates with Transactions Purchases of goods and services and goods of Purchases granted Loans Financial expenses services and goods of sale from Proceeds Purchase of goods and services and goods of Purchase

1 January -31 December 1 January 26.5 26.5 2013 3.8 3.8 3.3 3.3 2.4 2.4 4.7 4.7 26.5 26.5 2012 4.2 4.2 2.3 2.3 2.9 2.9 1.7 1.7 - - Contents 136 Eesti Energia Annual Report 2013 Consolidated Financial Statements 39. separate financial statementsofthe parentcompany. subsidiaries andassociates arereportedatcostinthe of theconsolidatedfinancial statements.Investmentsin accounting policiesthathave beenusedinthepreparation of theparentcompanyhave beenpreparedusingthesame Accounting ActofEstonia. Theprimaryfinancialstatements parent company,thedisclosureofwhichisrequired bythe includes the primary separate financial statements of the Financial informationdisclosedontheparent company term bondsarewiththematuritydatein2020. million arewiththematurity datein2018and otherlong- the Group’sbondstoEUR700million,ofwhich400 of 2.181%.Thisadditionalissueraisedtotalvolume 4.25%, with a nominal value of EUR 100 million and yield issue ofEurobonds due in 2018 and with a coupon rate On 23January2014theGroupcompletedanadditional 38. All othertransactionsareconcludedusingagreedprices. prices setbytheEstonianCompetitionAuthorityareused. benefits. Inpurchasingandsellingnetworkservices,the the paymentof3months’remunerationastermination the ManagementBoard,servicecontractsstipulate termination of the service contract with a member of period or in the comparative period. Upon premature loss fromreceivableswasrecognisedinthereporting 37. Relatedpartytransactions,continued Parent Company Financial Informationonthe Period Events AftertheReporting Income Statement Statement ofComprehensiveIncome OPERATING PROFIT YEAR FINANCIAL THE FOR PROFIT NET PROFIT BEFORE TAX YEAR THE FOR PROFIT EUR million in EUR million in YEAR THE FOR TOTAL COMPREHENSIVE INCOME Other expenses Other and impairment Depreciation, amortisation operatingOther income Total financial income and expenses Financial expenses income Financial expenses Payroll operatingOther expenses Raw materials and consumables used grants Government Revenue Corporate income tax expense Other comprehensive income for the year instruments hedge risk of Revaluation Other comprehensive income

1 January -31 December 1 January -31 December 1 January (369.0) (36.0) (23.8) (33.3) (10.3) 427.9 427.9 30.0 30.0 23.0 23.0 30.0 30.0 (5.4) (6.7) 29.7 29.7 2013 2013 (6.0) 65.7 65.7 47.6 47.6 17.6 17.6 17.6 17.6 0.1 0.1 7.7 7.7 (355.7) (30.6) 412.3 412.3 (27.2) (31.5) (12.5) 107.1 107.1 84.8 84.8 28.3 28.3 75.6 75.6 2012 2012 81.9 81.9 81.9 81.9 81.9 81.9 (8.4) 2.9 2.9 6.3 6.3 2.9 2.9 0.1 0.1 - Contents 137 Eesti Energia Annual Report 2013 Consolidated Financial Statements 39. Notestotheconsolidatedfinancialstatements,continued Statement ofFinancialPosition ASSETS EQ EUR million in assets Current assets Total Non-current assets equity Total U ITY Inventories G P Total current assets andCash equivalents cash 3months than more of maturities with banks at Deposits loss or profit through value fair at assets Financial instruments financial Derivative receivables other and Trade Total non-current assets subsidiaries from Receivables Derivative financial instruments financial Derivative Investments in associates Investments in subsidiaries assets Intangible Share capital Share premium premium Share Retained earnings Retained Hedge reserve Statutory reserve capital reserve Statutory roperty, plant and equipment and plant roperty, reenhouse gas allowances

1,232.5 1,232.5 1,158.8 1,158.8 2,152.4 2,152.4 993.6 993.6 954.2 954.2 505.5 505.5 230.5 230.5 259.8 259.8 216.6 216.6 621.6 621.6 257.7 257.7 88.8 88.8 31 December 25.2 25.2 2013 42.4 42.4 53.7 53.7 21.0 21.0 51.0 51.0 41.1 41.1 6.2 9.6 9.6 - - 2,090.7 2,090.7 1,240.1 1,240.1 1,138.3 1,138.3 952.4 952.4 259.8 259.8 194.8 194.8 992.7 992.7 299.1 299.1 621.6 621.6 221.9 221.9 497.1 497.1 90.0 90.0 22.0 22.0 2012 12.4 12.4 45.1 45.1 47.2 47.2 9.6 9.6 8.7 8.7 0.1 0.1 7.0 7.0 1.7 1.7 - LIABILITIES EUR million in Total liabilities Total equity and liabilities Total Current liabilities Current Non-current liabilities Non-current Borrowings Borrowings Provisions Deferred income payablesOther Total current liabilities current Total liabilities non-current Total Provisions Derivative financial instruments financial Derivative Trade and other payables

2,152.4 2,152.4 828.7 828.7 826.5 826.5 919.9 919.9 31 December 88.7 88.7 2013 91.2 91.2 0.9 0.9 1.2 1.2 1.0 1.0 0.1 0.1 0.1 1.4 1.4 2,090.7 2,090.7 850.6 850.6 732.5 732.5 731.3 731.3 118 .1 .1 118 116 .1 .1 116 2012 0.2 0.2 0.2 0.9 0.9 0.4 0.4 0.1 0.1 1.4 1.4 Contents 138 Eesti Energia Annual Report 2013 Consolidated Financial Statements 39. Notestotheconsolidatedfinancialstatements,continued Cash FlowStatement EUR million in activities operating from flows Cash Net change in current assets relating to operating activities operating to relating assets current in change Net Adjusted net profit Net cash flows from operating activities operating from flows cash Net received Interest costs paid borrowing and Interest activities operating to relating liabilities in change Net Adjustments tax before Profit Loss from doubtful receivables doubtful from Loss Change in provisions in Change equipment and plant property, of Depreciation to operating activities relating liabilities in change net Total operating activities other to related liabilities in change Net payables trade in Change Interest income to operating activities relating assets current in change net Total activities operating other to relating assets current in change Net Change in inventories activities operating to relating receivables in Change Interest expense on borrowings granted loans on gain/loss exchange Currency Gain/loss on derivatives unpaid/unsettled gains/lossesOther on investments asubsidiary of sale from Profit equipment and plant property, of sale from Profit/loss assets non-current purchase to received grant government of Amortisation ofAmortisation intangible assets 1 January -31 December 1 January (64.7) (99.5) (68.9) (31.8) (31.7) (31.2) (31.6) (34.1) 23.0 23.0 2013 27.5 27.5 33.4 33.4 (0.2) (0.4) (1.2) (0.1) (1.1) 2.6 2.6 3.2 3.2 2.6 2.6 1.2 1.2 1.0 1.0 7.7 7.7 - - (26.2) (20.8) (22.8) (65.8) (37.2) (14.9) (41.9) 30.2 30.2 35.9 35.9 34.4 34.4 30.4 30.4 10.0 10.0 2012 10.5 10.5 81.9 81.9 (1.1) 0.2 0.2 2.0 2.0 4.0 4.0 0.4 0.4 3.1 3.1 0.1 0.1 7.9 7.9 - - Cash flowsCash from investing activities EUR million in Cash flows from financing activities flows financing from Cash flows cash Net Proceeds from sale of property, plant and equipment and plant property, of sale from Proceeds assets intangible and equipment and plant property, of Purchase Proceeds from sale of subsidiaries of sale from Proceeds investments financial short-term of redemption and sale from Proceeds subsidiaries of capital share the to Contribution investments financial short-term of Purchase 3months than more of maturities with deposits term in change Net from received subsidiaries Dividends Net change in cash restricted from being used used being from restricted cash in change Net Repayments of bank loans Bank loans received Contribution to the share capital share the to Contribution subsidiaries from received deposit overnight in Change Cash and cash equivalents at the end of the period the of end the at equivalents cash and Cash activities financing from generated cash Total Dividends paid Net increase/decrease in cash and cash equivalents cash and cash in increase/decrease Net Proceeds from liquidation of liquidation from Proceeds subsidiary Purchase of subsidiary Repayments of other loans loansOther granted subsidiaries to granted overdraft in Change subsidiaries to granted loans of Repayments subsidiaries to granted Loans associate in shareholding of Purchase Proceeds from bonds issued bonds from Proceeds activities investing in used cash Net Cash and cash equivalents at the beginning of the period the of beginning the at equivalents cash and Cash 1 January -31 December 1 January (43.0) (55.2) 68.0 68.0 (3.0) 95.0 95.0 69.0 69.0 2013 40.1 40.1 (0.2) (3.8) (2.0) 53.7 53.7 34.1 34.1 10.7 10.7 45.1 45.1 (4.7) (7.8) (1.0) (1.4) 8.6 8.6 8.6 8.6 6.4 6.4 3.9 3.9 9.4 9.4 1.7 1.7 - - - - - (379.2) (325.3) 380.4 380.4 (90.0) 150.0 150.0 (65.2) (26.4) (53.9) 297.0 297.0 (16.5) (19.3) 65.2 65.2 32.8 32.8 25.0 25.0 22.4 22.4 33.9 33.9 2012 (4.2) (3.6) 11. 2 2 11. 11. 2 2 11. 45.1 45.1 3.0 8.9 8.9 0.6 0.6 0.7 0.7 - - - - Contents 139 Eesti Energia Annual Report 2013 Consolidated Financial Statements Statement ofChangesinEquity 39. Financialinformationontheparentcompany,continued EUR million in 31 December 2012 18) (Note 31 December at as equity unconsolidated Adjusted equity in directly recognised company, the of owners with transactions Total Contribution to the share capital share the to Contribution Dividends paid (Note 19) (Note paid Dividends Other comprehensiveOther income for the year Profit for the year the for Profit influence significant and controlling under holdings of amount Carrying equity as at 31 December 2011 31 at as December equity Adjusted unconsolidated method equity using influence significant and controlling under holdings of amount Carrying 2011 31 at as December Equity method equity using influence significant and controlling under holdings of amount Carrying influence significant and controlling under holdings of amount Carrying Equity as at 31 December 2012 31 at as December Equity equity in directly recognised company, the of owners to distributions and by contributions Total Total comprehensive income for the year Share capital Share 150.0 150.0 150.0 150.0 621.6 621.6 150.0 150.0 471.6 471.6 - - - - premium 259.8 259.8 259.8 259.8 Share Share ------reserve capital reserve Statutory 47.2 47.2 47.2 47.2 ------Hedge reserve Hedge (0.4) 12.4 12.4 (0.9) 11. 5 5 11. (9.9) 2.9 2.9 9.5 9.5 2.9 2.9 - - - - - Currency translation Currency differences 3.5 3.5 2.4 2.4 3.5 3.5 2.4 2.4 ------Retained earnings (498.8) (497.1) 465.6 465.6 282.4 282.4 453.6 453.6 (65.2) (65.2) 663.6 663.6 669.9 669.9 299.1 299.1 (65.2) 81.9 81.9 81.9 81.9 - - 1,235.2 1,235.2 1,070.5 1,070.5 1,408.1 1,408.1 1,240.1 1,240.1 (498.8) (497.1) 663.5 663.5 150.0 150.0 (65.2) 665.1 665.1 84.8 84.8 84.8 84.8 84.8 84.8 81.9 81.9 Total 2.9 2.9 Contents 140 Eesti Energia Annual Report 2013 Consolidated Financial Statements company canmakepayments toitsshareholders. Under theAccountingAct ofEstonia,adjustedunconsolidatedretained earningsaretheamountfromwhichapublic limited Statement ofChangesinEquity 39. Financialinformationontheparentcompany,continued EUR million in as at 31 December 2013 18) (Note 31 at as December Adjusted unconsolidated equity reserve capital capital reserve statutory to earnings retained of Transfer Dividends paid (Note 19) (Note paid Dividends capital share the to Contribution Other comprehensiveOther income for the year year the for Profit 2012 18) (Note 31 at as December Adjusted unconsolidated equity method equity using influence significant and controlling under holdings of amount Carrying influence significant and controlling under holdings of amount Carrying 2012 31 at as December Equity method equity using influence significant and controlling under holdings of amount Carrying influence significant and controlling under holdings of amount Carrying 2013 31 at as December Equity equity in directly recognised company, the of owners with transactions Total equity in directly recognised company, the of owners to distributions and by contributions Total Total comprehensive income for the year Share capital Share 621.6 621.6 621.6 621.6 ------premium 259.8 259.8 259.8 259.8 Share Share ------reserve capital reserve Statutory 47.2 47.2 51.0 51.0 3.8 3.8 3.8 3.8 3.8 - - - - -

Hedge reserve Hedge 30.0 30.0 30.0 30.0 42.4 42.4 12.4 12.4 47.0 47.0 (0.9) 11. 5 5 11. 4.6 4.6 ------Currency translation Currency differences 0.8 0.8 0.8 0.8 2.4 2.4 2.4 2.4 ------Retained earnings (505.5) (497.1) 465.6 465.6 663.6 663.6 566.1 566.1 (59.0) (59.0) 299.1 299.1 (55.2) 257.7 257.7 813.9 813.9 (3.8) 17.6 17.6 17.6 17.6 - - 1,546.3 1,546.3 1,232.5 1,232.5 1,408.1 1,408.1 1,240.1 1,240.1 (505.5) (497.1) (55.2) (55.2) 665.1 665.1 (55.2) 819.3 819.3 30.0 30.0 47.6 47.6 17.6 17.6 Total - - Contents 141 Eesti Energia Annual Report 2013 Consolidated Financial Statements :+7 1 80 :+7 1 90 www.pwc.ee 1900, 614 +372 F: 1800, 614 +372 T: AS translation. this over precedence takes report our of version language original the opinions, or views information, of interpretation  2014 February 20 No.325 Certificate Auditor’s Vilu Ago financial their and 2013, Union. December European 31 the of by as adopted subsidiaries as its Standards and Reporting PricewaterhouseCoopers Financial AS International AS Energia with Eesti accordance of in position ended financial then the year respects, material the all for flows in fairly, cash present and statements performance financial consolidated the opinion, opinion. our audit accounting In our of for reasonableness basis the a the provide and for to used appropriate not policies and but accounting sufficient circumstances, Opinion is of statements. the obtained appropriateness financial have in the consolidated we appropriate internal evaluating evidence the considers are includes audit of auditor that also the presentation the procedures that audit overall assessments, believe audit An the risk We design control. evaluating judgment, those to internal auditor’s as making order entity’s well the In in the as on error. statements of management, or depend financial effectiveness by fraud selected consolidated the made procedures to the misstatement. on The due estimates of opinion material whether statements. presentation from an statements, financial fair free financial expressing consolidated and are consolidated of the preparation the statements purpose in entity’s of financial disclosures the misstatement consolidated and material to the amounts of relevant whether standards the risks control about Those about the Auditing. assurance evidence on of reasonable audit Standards assessment International obtain obtain the with to to accordance including audit procedures in the performing audit perform our involves conducted and audit We plan An audit. and our requirements on ethical based statements with financial comply consolidated misstatement, these we on material that opinion from require an free express are to that is responsibility statements the Our financial by consolidated adopted of as preparation Standards the Reporting enable Financial to International Responsibility necessary Auditor’s with is accordance determines in error. Board statements or Management financial the fraud consolidated as to these control due of internal whether presentation such fair for significant and and of preparation Union, summary the European a for comprising responsible notes is and and Board ended, 2013 Management December then 31 year the of Statements for Financial as Consolidated flows position the financial cash for of of Responsibility statement statement Board’s Management consolidated and equity the comprise in which changes subsidiaries, information. of explanatory its statement other and income, and comprehensive AS policies accounting of Energia statement Eesti statement, of income statements consolidated financial the consolidated accompanying the audited have We AS Energia Eesti of Shareholder the To original) Estonian the of (Translation REPORT AUDITOR’S INDEPENDENT hsvrino u eoti rnlto rmteoiia,wihwspeae nEtna.Alpsil aehsbe ae oesr httetasaini nacrt ersnaino h rgnl oee,i l atr of matters all in However, original. the of representation accurate an is translation the that ensure to taken been has care possible All Estonian. in prepared was which original, the from translation a is report our of version This rcwtrosCoes än n 5 04 aln,Estonia Tallinn, 10141 15, mnt Pärnu PricewaterhouseCoopers,  ; ies o ;Rgsr oe 10142876 code: Registry 6; No. License rsiHõrrak Kristi uio’ etfct No.548 Certificate Auditor’s Contents 142 Eesti Energia Annual Report 2013 Consolidated Financial Statements Contents Profit Allocation Proposal

The retained earnings of Eesti Energia Group as at 31 December 2013 were 566 084 644.56 EUR. Paragraph 1 of § 77 of the State Assets Act states that the dividends payable by an entity where the state has controlling interest shall be approved by the Government of Estonia at the proposal of the Minister of Finance. According to the dividend distribution plan disclosed by the Government of the Republic, Eesti Energia AS is required to pay 113 600 000.00 EUR as dividends in 2014.

The Management Board thus proposes under section 332 of the Commercial Code of Estonia to allocate the retained earnings of Eesti Energia Group as at 31 December 2013 as follows:

1. to pay 113 600 000.00 EUR as dividends to shareholder; 2. to transfer to the statutory reserve capital 7 975 247.54 EUR; 3. not to distribute the remaining retained earnings of 444 509 397.02 EUR, due to the continuing financing needs of the Eesti Energia Group. Eesti Energia Annual Report 2013

143 Contents Signatures of the Management Board to the Annual Report for Financial Year 2013

The Annual Report of the Eesti Energia Group for the financial year ended on 31 December 2013 consists of the management report, the consolidated financial statements, the auditor’s report and the profit allocation proposal. The Management Board has prepared the management report, the consolidated financial statements and the profit allocation proposal.

MANAGEMENT BOARD 20 February 2014

Chairman of the Management Board Members of the Management Board

Sandor Liive Margus Kaasik

Raine Pajo Eesti Energia Annual Report 2013

Margus Rink 144 Eesti Energia AS Laki 24, 12915 Tallinn, Estonia tel: +372 715 2222 [email protected] www.energia.ee